Lifetime value is the profit a customer produces across the whole relationship, not the first invoice. For most local businesses that means the first job, the repeat work, the eventual large replacement, and the neighbors they send you. It is the number that decides what you can afford to spend to win one.
Briefly explained
- Total profit from one customer, over the whole relationship.
- Use profit, not revenue.
- It sets the ceiling for acquisition cost.
- A rough estimate is enough to change decisions.
Why does acquisition cost make no sense without it?
Because a cost is only high or low relative to what it buys.
A figure that looks alarming against a single small job can be a bargain against a household that stays with you for eight years and replaces a major system through you. The same number, read against the first invoice alone, gets the channel cut. See customer acquisition cost.
How do you estimate it without a data team?
You need four numbers, and none of them has to be exact.
- Average profit per job, by department
- Average number of jobs per customer per year
- How many years the relationship usually lasts
- Multiply, then subtract what it costs to serve them
The result will be rough. It only has to be right enough to tell you whether acquisition is affordable, and whether retention deserves more attention than the next campaign.
What does it change about where you spend?
It changes two things, and the second usually comes as a surprise.
- The ceiling on acquisition. You can outbid competitors who only count the first job, and still make more per customer.
- The case for retention. Maintenance programs, reminders set from install dates and a steady review habit often move this number further than any ad campaign, for a fraction of the cost. See email flow.
Why do two channels with the same cost per lead produce different businesses?
They bring different people.
A source full of price shoppers and a source full of households looking for somebody to keep can post identical numbers at the top of the funnel, and diverge completely over five years. Lifetime value is where that difference finally becomes visible.
What do the terms mean?
- LTV or CLV: The same thing. Lifetime value.
- Retention: Keeping a customer, as opposed to winning one.
- Churn: How quickly a customer base leaks.
- Payback period: How long before a customer has earned back what they cost.
- Average ticket: One job’s value. The first building block of this calculation.
Owner questions
