Customer LTV: Premium Segment (SGD 5K/Customer) vs Budget Segment (SGD 500/Customer)
Retail: premium customers (bought furniture, avg SGD 2K/order, 5 orders lifetime) = SGD 10K revenue, minus 35% COGS = SGD 6.5K gross profit. Minus 15% operating cost = SGD 5.5K LTV. Budget customers (bought basics, avg SGD 100/order, 3 orders lifetime) = SGD 300 revenue, 65% COGS = SGD 105K gross, minus operating cost = SGD 52.5K LTV. Marketing spend justified: SGD 500 to acquire premium (9% of LTV), SGD 50 to acquire budget (9% of LTV). But: premium acquisition cost higher, breakeven slower.
How to Calculate LTV#
LTV = (Average Customer Lifetime Revenue) × (Gross Margin %) - (Acquisition Cost) - (Retention Cost). For premium segment: SGD 10K revenue × 65% margin = SGD 6.5K, minus SGD 1K acquisition, minus SGD 500 retention = SGD 5K LTV. For budget: SGD 300 revenue × 65% margin = SGD 195, minus SGD 200 acquisition, minus SGD 100 retention = SGD -105 (negative LTV = loss). Oops: budget segment unprofitable.
Why LTV Varies by Segment#
(1) Purchase frequency: premium buys 5x, budget buys 1x. (2) Order value: premium SGD 2K/order, budget SGD 100. (3) Repeat rate: premium 80% repeat, budget 30% repeat. (4) Acquisition channel: premium via influencer (high cost), budget via paid ads (medium cost). Net: premium LTV 10x higher.
If LTV varies 10x, marketing strategy should differ.
Strategic Implications#
If LTV varies 10x, marketing strategy should differ. Premium: higher acquisition spend justified (SGD 500 to acquire), longer payback acceptable (12+ months). Budget: lower acquisition spend (SGD 50), payback <3 months. Avoid: spending premium marketing budget on budget segment (bad ROI). Or: don't acquire budget segment at all if unprofitable (focus on premium).
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AskBiz LTV Segmentation#
Tracks LTV by segment (premium/mid/budget, or by acquisition channel, or geography). "Premium segment (50 customers): avg LTV SGD 5K. Budget segment (500 customers): avg LTV SGD 100. Portfolio value: SGD 250K + SGD 50K = SGD 300K. If acquisition cost is SGD 200/customer across all, premium cohort pays back in 1.2 months (SGD 1K cost → SGD 5K LTV), budget cohort never breaks even (SGD 200 cost → SGD 100 LTV loss). Recommendation: focus acquisition on premium, phase out budget."
- Retail: premium customers (bought furniture, avg SGD 2K/order, 5 orders lifetime) = SGD 10K revenue, minus 35% COGS = SGD 6.5K gross profit.
- Minus 15% operating cost = SGD 5.5K LTV.
- Budget customers (bought basics, avg SGD 100/order, 3 orders lifetime) = SGD 300 revenue, 65% COGS = SGD 105K gross, minus operating cost = SGD 52.5K LTV.
People also ask
How do I define "premium" vs "budget"?
By order value (top 20% by value = premium), by frequency (top 20% repeaters = loyal), or by profitability (calculate margin, segment by highest/lowest margin products).
Should I invest in converting budget to premium?
Only if conversion cost <(premium LTV - budget LTV). E.g., if conversion training costs SGD 500, and premium LTV = SGD 5K, budget LTV = SGD 100, savings = SGD 4.9K, ROI 10x. Worth it. But: most conversions don't work (customer preferences are sticky).
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