hannamyluv - 7:32 pm on Nov 15, 2005 (gmt 0)

In the sense the LTV means someone who will shop a site repeatedly for a decade or more

No, not at all. As I said, you need about 2 to 3 years to do a good lifetime value. As a matter of fact, the catalog company I worked for calculated LTV on only 3 years, to help combat changes in the market that can affect LTV.

What probably happened at LL Bean is that they ran the Free Shipping promotion 3 years ago. On the surface, it looked like a bust. It lost money. Three years later, when they have good data on the LTV of the customers, some bright marketer segmented out the people who made their first purchase during that time and compared the LTV of those customers to ones who made their initial purchase the year before without the free shipping. It probably showed that those customers LTVs times the number of customers gained during that promotion made the promotion worth while.

Of course, while I am saying this, keep in mind I have seen even big catalog companies do stupid things. That is what logically should have happened but the internet does funny things to peoples' minds. They think that the economy on the internet is somehow different from the real world economy. It is almost exactly like real world economies. Cyberspace is a big mall, nothing more. ;)

but does it matter for most of us?

Yeah, it does. Knowing how much you can safely spend to get a new customer is very valuable. Think about starting a PPC campaign that the bids start at $1 each. You need to know if it is worthwhile to get into the game. $1 a click is alot. But if you figure that each customer you gain will be worth on average $100 you know that you can run that campaign for 100 clicks. If you get 1 sale in 100, you break even. 2 sales in 100, you profit and $1 a click is well worth it. If you have no sales in 100 clicks, you shut the campaign down and you are only out $100. As opposed to not knowing, where you might let the campaign run for 200, 300, 400 or more clicks or not at all because you don't know how much you can afford to spend to get a new customer.

Even if you only get 1 purchase from every customer you ever have, you still have a LTV. Knowing what that LTV is helps considerably in determining where you will advertise and what promotions worked.

We have been talking about email lists. You may think that the email lists aren't that profitable, but you may find that the LTV of customers on your email list have a better LTV as compared to a random segment of your regular customer base. The email list customers may never buy from an email, but just getting the email may keep your company fresh in their mind so that they purchase from you when they need something. But you can't know that unless you know the LTV of your email list customers versus te LTV of your regular customer.