Now, quality prospective is obvious. How much one should invest in keeping this user vs. loosing him? After all no amount of marketing charm would be able to compensate for bad or unsafe user experience. Of course when a site looses one user due to bad quality of user experience the site looses significantly more that this particular user's lifetime value. Picture this -- Sue the User is unhappy with the company XYZ. She is lost for the company. She also might share with experience with 500 of her Facebook friends.
Call it a network multiplier.
Value to the company = Lifetime User Value * User's Network Multiplier
The resulting number could be positive or, unfortunately, negative.
Seth Godin's Blog via OStatic blog:
Embracing lifetime value
If you walk into a company-owned cell phone store to sign up for a contract, what are you worth?
Given the huge gross margins at AT&T and Verizon and the standard two-year contract, I think it's easy to figure on more than $2000 in lifetime value.
If you ran a business where a customer represented an additional $2,000 in profit, how would you staff? How long would you make someone wait? If staff costs $25 an hour, how long would that extra person take to pay off?
Few businesses understand (really understand) just how much a customer is worth. Add to this the additional profit you get from a delighted customer spreading the word--it can easily double or triple the lifetime value. [Read the rest]
posted by: Greg Margolin
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