By Arvid Tchivzhel, SVP of Technology at Mather Economics
January 22, 2024
Why prioritize LTV?
When crafting acquisition strategies, publishers often grapple with key questions like:
- What pricing strategy achieves both volume and revenuetargets?
- How can we cultivate new subscribers who exhibit lasting engagement?
- Is it more effective to offer free trialsor paid trials?
- What is the optimal introductory offer?
- What should be the full priceafter the introductory period?
While these questions are crucial, assessing them in isolation won’t result in a strategic approach to maximizing subscription revenue.
Navigating decisions that affect volume, revenue, and ARPU requires a nuanced understanding of their dynamics, making an LTV-based approachcritical for success.
The question publishers should ask is, “Which offer optimizes total LTV?”By framing the question in terms of LTV, publishers liberate themselves from the ongoing reprioritization across volume and ARPU.
What is LTV and how is it calculated?
Mather Economics calculates LTV as the expected cumulative 3–5-year operating margin from a subscriber. The formula considers inputs such as introductory pricing, term length, retention probability, and any expected pricing actions throughout the subscription lifecycle.
Although LTV is simple in theory, it requires accurate data and knowledge of the relationships between key inputs. Mining your own campaign history and industry benchmarking data can be utilized to measure historical LTV and opportunity.
How does LTV enhance decision making?
Subscriber lifecycle managementtactics influence LTV in varying ways. These tactics may include: the frequency and magnitude of price increases, churn reduction tactics, product changes, and digital engagement campaigns. The impact and success of changes in each of these levers can be evaluated using LTV.
Understanding your LTV by channel is critical to ensure every dollar spent on paid acquisition campaigns generates a profitable return. For example, if LTV of new subscribers from social media campaigns is only $50, but the cost per acquisition is $60, shift the spend towards more profitable channels or make significant changes to the campaign.
In the context of go-to-market offer optimization, Mather holds these other factors constant to isolate the impact to LTV of the offer-specific inputs (introductory price, term, and full price). This approach helps publishers strike the right balance across key metrics in a way that maximizes overall revenue opportunity.
How have publishers applied LTV in their offer strategy?
Through application of this framework and rigorous testing, many publishers, including leaders like The Boston Globe and The New York Times have landed on a similar strategy: Adopt low introductory prices with extended terms and aggressive step-up prices(for example, USD$1 for the first six months that renews to USD$1 per day).
Some media companies have adopted low introductory prices with aggressive increases.
A broad survey of publishers adopting similar strategies performed by Greg Piechota of INMA can be found here.
Several years ago, NRC (Amsterdam) identified that optimal acquisition prices were lower than their traditional offer. While they haven’t been as aggressive as some publishers in this regard, testing by Mather Economics has shown that pricing is a key leverused when other tactics plateau subscriber volume.
Mather’s analysis of NRC’s offer structure revealed that digital introductory offer pricing could be lowered to boost start volume and maximize LTV.
How can publishers get started with LTV?
Publishers that align their teams around LTV as a North Star goalwill maximize their revenue opportunity while also mitigating risk from investment in competing tactics.
Mather Economics has collaborated with many publishers on LTV-based offer optimization algorithms which are actively used in the industry today.
Contact us today to learn how our experts can help.
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