Naked Wine: 20 Year LTV?

The last question is around how much you can really trust lifetime value. Everyone talks about lifetime value but it’s hard to forecast and there are a lot of variables going into it. How do you really think about optimizing and forecasting that, for certain cohorts?

It’s all based on trend analysis. At Naked, we had about seven years of data, so we were getting pretty well into a long range of data. You trend the stuff out and say, if the sales retention has been 97%, for the last three years, in some of the older cohorts, then I’m pretty certain that it’s going to be 97% for the next three years, as long as something catastrophic doesn’t happen.

I was always confused as to why Naked Wines used a 20-year lifetime. You must actually think that they had 20 years, as a customer?

Yes. I can’t remember exactly, but if the average customer joins us at 35, it’s safe to assume that their wine-drinking habits will be relatively the same for the next 20 years, as they will be working. To be clear, the 20 years is just to say, at what point do we stop forecasting this stuff? The lifetime value builds up, over time, as you realize some of that, but what is actually happening is that the money that you are getting from those cohorts is going like this, and they eventually flatten out and sometimes they tail up a little bit. But when you discount that – and any decent lifetime value calculation will have a discount factor built into it – you get to the point where, beyond 20 years, it starts to get pretty marginal. You say 20 years, but even if we went to 21 years, the thing wouldn’t change that much.

It’s partly that and partly a view on the type of product, of what’s reasonable. It really depends on looking at your own product and saying, what does it look like. If I was Hello Fresh, I wouldn’t be looking at 20 years; I would probably be thinking about 10. What is Hello Fresh great for? It’s a great way to get interesting meals for your family. You would only start it when your kids would eat that kind of food and you would stop it when they leave home. That’s probably eight to 18. If I was Hello Fresh, looking at lifetime values, I would probably be looking at 10 years, not 20, for that sort of reason.