Customer lifetime value and social media agency fees

Key takeaways

Customer lifetime value changes how a social media agency fee looks. Illustratively, if a customer brings £500 profit a year and stays three years, they are worth £1,500, so a £1,500 monthly fee needs one new customer a month to pay back over their lifetime, not three in the first year. Use profit, not revenue, and your real retention.

• Lifetime value: profit per year times years kept.
• Illustrative: £500 a year for 3 years is £1,500.
• A £1,500 fee then needs 1 new customer a month.
• Use profit and real retention, not hopes.

What is customer lifetime value?

Customer lifetime value (LTV) is the total profit a typical customer brings over the whole time they buy from you. For repeat-purchase businesses, such as salons, gyms, accountants or subscription products, it is far higher than the profit on the first sale.

• Social media agency pricing in the UK
• When does a social media agency pay for itself?

How do you use LTV to judge an agency fee?

Divide the monthly fee by lifetime value to find how many new customers a month the fee needs. Illustratively: £1,500 fee divided by £1,500 lifetime value equals one customer a month. Judged on first-year profit of £500, the same fee would need three.

• Work out average profit per customer per year.
• Multiply by the average years they stay.
• Divide the monthly fee by that figure.
• Compare with new customers social media brings.

• Social media customer acquisition cost: what is a good CAC?

Why does LTV matter for social media?

Social media often brings customers slowly but keeps them longer, because they follow you and see you regularly. Judging it only on immediate sales undervalues that. LTV also shows how much you can sensibly pay to win a customer.

When does LTV mislead?

When it uses revenue instead of profit, assumes retention you have not seen, or applies to one-off purchases. A wedding venue or a one-time build rarely sees repeat buyers, so judge those on first-sale profit and referrals instead.

What does this look like in practice?

A pattern we see: a subscription business cancels social media because first-month sales do not cover the fee. Recalculating on lifetime profit usually shows the channel was paying back, just over a longer period.

• See client work
• Social Media Marketing for UK businesses

Lifetime value checklist

• Use profit, not revenue.
• Measure how long customers really stay.
• Track which customers came from social media.
• Divide the fee by lifetime value.
• Review the figures every six months.

• Does paying an agency lower your ad costs?

Next step

Pick ten customers who started two or more years ago. Add up their profit. That is your real lifetime value.