There is a recent article in the Harvard Business Review describing the benefits of valuing companies by analyzing their customers – their retention, churn and cost of acquisition. Customer-based corporate valuation (“CBCV”) is meant to highlight the true value of an entity due to the loyalty of its clientele. To an old cataloger like me, this is simply Life Time Value (“LTV”) cloaked around a revenue model.
For years, direct marketers and their investors have known that having an LTV greater than the cost of acquisition is the true path to building value. If you can add more value than the cost of acquiring it, then you have a business which can scale. If all your customers churn out, or cost more to acquire than they are worth, then there isn’t much there. It’s about time my alma mater figured that out.