Rethinking Consumer LTV

I just know I’m going to get roasted for this one.

Recently, I had someone grill me on the LTVs of a bunch of early 2010s consumer companies.

I realized in that moment that LTV, for me, couldn’t be as important at the earliest stages.

What’s the lifetime value of a Casper consumer?

What is the lifetime value of a Glossier consumer?

Well, people are very erratic. They are, most importantly and relevant to us, very erratic spenders.

But, telling this person that I didn’t care too much about LTV at the earliest stages didn’t go so well. So, I decided to write out exactly why I don’t really take LTV as seriously and why the notion of LTV being the most important metric in early-stage consumer investing might have caused for the early-stage consumer bubble of the 2010s that we cant take advantage of today.

LTV is supposed to tell you the true, either reoccurring or not, worth in effort to acquire that customer or, in the most extreme sense, decide if you’re even going to start or worse shut down that company.

Let’s play VC for a minute and decide based off of lifetime value per customer if this investment is a good idea.

First of all, this is an example used by a particular pair that I admire and like Justine and Olivia Moore. Let’s refer to their breakdown of Casper’s LTV from what we know publicly.

“We can estimate a ~$765 AOV for Casper, given a $710 AOV for e-commerce and an $820 AOV for retail channels. Given refunds, returns, and discounts of $80M on gross revenue of $392M, we can calculate that ~20% of revenue is either refunded or discounted. We (conservatively) assume that 5% of this is true refunds and that discounts are already accounted for in AOV, and therefore adjust the AOV down to $727. Given Casper’s 16% repeat purchase rate (we assume 1 repeat order per repeat customer, which might not be accurate*), this gives us $843 in lifetime revenue per customer — at a 50.7% gross margin, this implies an LTV of $427.6.

We also assume the AOV of the first order is the same as the AOV of the second order — the S-1 states that repeat customers “most frequently return to purchase the same product.””