The retention rate, those stable users, are the foundation for you to build consumer Internet products.
03
LTV, how does it count?
One thing that any entrepreneur who has taken external financing can’t avoid is that there will always be people who expect your business to start making money.
Of course, VCs will invest in a lot of consumer Internet companies, and some may not make much money all the time, and they don’t mind it too much. But if your company has reached a later round, someone will start to ask, what is the lifetime value of your LTV users?
In fact, LTV does not have a standard algorithm. Every investor or entrepreneur defines LTV in a different way. Perhaps, as a company operator, you can “accurately know” the user’s LTV, which is a strange concept at first.
What was the LTV of an Amazon user in 1995? It must be more than each of them spends on books on the entire shelf. But if you can’t go back to 1995, you will never know what the real LTV will be.
I think asking LTV is actually asking these 3 things:
1. What is the profit margin of the company? Your income is actually just an imaginary number, and the most important thing is your actual variable profit (excluding fixed costs, the cost for each dollar of income you need). From income, you need to subtract your cost of goods sold (COGS), and then subtract all other reasonable variable costs, such as freight, storage fees, payment fees, sales team, etc. There are many ways to increase actual profits. Some of them are common classics. For example, e-commerce companies reduce costs by expanding the number of distribution centers. There are also some more obscure methods, such as using “algorithms” to make some processes more efficient. It is better not to think that they can really cut costs in your heart. Of course, some are better.
2. How about the company’s cash flow? How quickly did the money you spend to acquire customers turn into actual profits? Draw a cumulative profit curve, starting with a little profit contributed by each user at the beginning, some users continue to return to repurchase, you will see the curve gradually straighten up, this is the profit the user brings to you over a period of time. At this time, you can make more informed decisions regarding your growth goals. The best consumer Internet companies tend to be disciplined and put every piece of