NECC was leading their own LTV project which ultimately got nowhere but our project was able to use many of their insights.
NECC had realized that LTV comes in four flavors:
- Expected Future Value
- Total Past Value
- Potential Future Value: What would the customer be worth is there was no churn?
- Expected Life Value: (1) + (2)
Usually, when we think of LTV we think of just (1). At LTC all four metrics were very useful.
LTC had a very large customer acquisition cost; it often took a year for a customer to pay of their acquisition cost. By tracking a customer's past and future values separately we were able to see the full impact of different acquisition strategies.
LTC's direct marketing concentrated on retention efforts, and the difference between Expected Future Value and Potential Future Value became the natural metric to run attrition campaigns against (i.e., if a customer's EFV was $250, and PFV was $475, then $475 - $250 = $225; if we plan on recovering 10% of the difference between EFV and PFV then for that customer we shouldn't spend more that $22.50 to do so).
The NECC project never got beyond PowerPoint because they had made no plans for implementation. Once the report was complete the project faded away.
Moreover, NECC never really dove into the financials of LTC. What they did was to go around asking people what they thought was important and put together the subjective, narrow opinions. A project like LTV is a rare chance to look at a problem holistically and completely and the chance to bring new understanding to the enterprise as a whole should not be missed.