The LTV by Channel answers the question: which marketing channels have the most profitable growth potential?
Where to find it?
The LTV by channel dashboard is in the Attribution section.
What is LTV?
LTV stands for Lifetime Value, which is a metric used in marketing and analytics to measure the total value that a customer is expected to bring to a business throughout their lifetime as a customer.
It is calculated by adding all revenue generated by a customer, from the day of their first order to the present. It is also possible to calculate the average LTV for a given cohort by dividing the average LTV by the number of customers in the cohort.
Who is the LTV by channel dashboard for?
The LTV by channel is a useful dashboard for media buyers and CEOs who need to track monthly which marketing channels are the most profitable over time, to make strategic investment decisions.
How to read the LTV data?
LTV shows the revenue brought by the client to an e-commerce shop over the short, mid, and long term. LTV can be sorted by channels that contributed (either totally or partially) to acquiring the customer.
LTV is always observed by cohort. It needs to be analyzed over long periods of time to be relevant. Look at data from 3 months minimum (ideally more than 6 months) before the present day to get a representative sample. The longer the observation period is, the clearer trends appear.
⚠ The best order source to select for an LTV analysis is the Online store. It can work with other sources but might not be as accurate as for the “online store”. Make sure to select Online Store in the "Origin of order" menu.
Description of the data
The Cost per Acquisition (CPA) and Average First Basket show you how effective your marketing channels are to acquire new customers.
The LTV shows the channel’s revenue growth over time or customer engagement after the first order.
This dashboard gives you a way to compare the engagement potential of your different marketing channels over time (after the first order).
⚠ The first observable cohort is the one from the first month following the activation of the Quantic Factory application.
For instance, if you activated the application on January 4 (or even January 31), the first observable cohort is the one for February (and then all the following ones). Please do not select previous cohorts, as data will not display.
⚠ LTV data are never displayed for the current month but stop at the end of the month before the present. This means that if you are looking at the data on March 25, 2023, and if you selected the January 2023 cohort, the LTV data displayed for this cohort will be from January first, 2023 to February 28, 2023.
How to interpret the results
When looking at the LTV by channel dashboard, you see 3 key pieces of information:
the Cost per Acquisition (CPA),
the Average Basket (AB) of the first order,
the LTV.
In this instance:
We are on September 5th, 2023, and the selected cohort is February 2023
LTV is computed for the following period: February 2023 to August 2023
The CAC for February 2023 is 5$ more than the average basket, which means the business is not profitable with only rank 1 orders.
The LTV is 35$, indicating that customer engagement after the first order is bringing a 10$ growth compared to the first average basket. This is a sign of good growth potential after the first order.
Channel | Customer Acquisition Cost | Average basket #1 orders | LTV |
1 | 30$ | 25$ | 35$ |
Tips: How to make informed investment decisions based on LTV?
In most marketing analysis tools, you only get to see the CAC and the average basket for first orders. The data looks like this:
Channel | Customer Acquisition Cost | Average basket #1 orders |
1 | 30$ | 25$ |
2 | 28$ | 30$ |
3 | 31$ | 31$ |
Based on this data, it would be reasonable to say that Channel 2 is the one to invest in, because of its low CAC and high average basket. It would also be fair to say channel 3 has a balanced budget and could continue to pay for itself while bringing in more new customers.
In the Quanticfy LTV by channel dashboard, we add the LTV (LifeTime Value) to the analysis, so the data look like so:
Channel | Customer Acquisition Cost | Average basket #1 orders | LTV |
1 | 30$ | 25$ | 35$ |
2 | 28$ | 30$ | 33$ |
3 | 31$ | 31$ | 31$ |
We see that the channel 1 cohort has grown by $10 since the first sale, while the channel 2 cohort has grown by only $3 and the channel 3 cohort has generated no revenue since the first sale.
Since acquisition is expensive (media spend) compared to CRM (emailing), to achieve profitable growth over time, you also need to prioritize the channels that generate the biggest difference between LTV and AB from the first order: this is what will allow you to over-invest in acquiring a new customer and therefore seek more market share.
With this in mind, Channel 1, which seemed less attractive when only considering CAC and AB, now appears to be a good investment to focus on to generate profitable growth.
All else being equal, the growth indicated by LTV should continue over the next few months.
We can assume that Channel 1 is most likely to continue to bring in $10 every three months, while Channel 2 would only bring in $3 and Channel 3 $0, making Channel 1 a relevant investment option although considered unprofitable at first.
Channel | Customer Acquisition Cost | Average basket #1 orders | LTV | Analysis |
1 | 30$ | 25$ | 35$ | Not profitable from the first order, but more growth than Channel 2 over time |
2 | 28$ | 30$ | 33$ | Profitable from the first order, but less growth than Channel 1 over time |
3 | 31$ | 31$ | 31$ | Balanced budget from the first order, but less growth over time than Channel 1 and 2 |