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Jul 6, 2015

LTV SchmeLTV

guy and bar graphIf there is one metric our industry is fixated upon, it’s LTV (long-term value). And, like so many other things, though it started out as such a good idea, it is in serious need of a tune-up.

Now don’t get me started about the 7-ways to Wednesday that LTV is calculated. You’d think we would have come up with standard measurement for LTV.

My problem is our industry has blindly assessed the same LTV to a donor (usual by channel acquired) while disregarding the most critical driver to LTV . . . LIFE EXPECTANCY.

We did a study for one of our clients on their new donors acquired last fall. The average age for a direct mail acquired donor was 75-years old. According to life expectancy tables, a 75-year old’s life expectancy is 11 years. Compare that to a life expectancy of 30-years for a 50-year old.

Without taking life expectancy into consideration and assuming all donors’ LTVs are equal, we avoid going after younger donors because they are “too expensive” to acquire than are older donors. Yet, when you calculate life expectancy into the equation, the numbers show you can actually afford to spend more acquiring younger donors because the LTV is actually much higher.

If you aren’t using life expectancy when you are calculating your LTVs, you might be making big mistakes in your acquisition decisions.

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