P and C Agent Growth Authority

Lifetime Value - Total Shift in Our Thinking

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Million Dollar Agency

Customer lifetime value (LTV) is a crucial metric for business decision-making, especially when determining marketing spend. [1, 2] It represents the total revenue generated by a customer throughout their relationship with a company. [1]

Here's a breakdown of LTV and its significance:

  • Definition: LTV is calculated by adding a customer's initial payment to the expected revenue from future renewals or purchases. [1]
  • Application in Insurance: In the property and casualty insurance industry, agents can leverage LTV to determine the maximum cost they can afford to acquire a new client. [2]
  • Relationship with Marketing Costs:
  • LTV Calculation Factors: Several factors contribute to calculating LTV: [4, 6]
  • Impact of Retention Rate: Increasing the customer retention rate significantly boosts LTV and consequently, the return on investment (ROI). [6, 7]
  • Strategic Thinking: Agents should adopt a strategic mindset, focusing on profitability and using LTV and CPS to monitor and assess their business performance over time. [6, 8] They should recognize that each sale generates revenue represented by LTV and each retention percentage corresponds to a specific number of renewals. [6, 8]

    • Example: A policy with a $30,000 premium, an 18% new business commission, an 8% renewal commission, and an 80% retention rate yields an LTV of $17,400. [5, 9, 10] If the lead spend was $10,000, the agent would net $7,400, representing a 74% ROI. [10, 11] Increasing the retention rate to 90% would increase the LTV to $21,750 (117.5% ROI), while decreasing it to 75% would lower the LTV to $13,050 (30.5% ROI). [7]


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    P and C Agent Growth AuthorityBy Jon L and Erin M