Seeing the planning of the referral program and then modeling Return On Ad Spend (ROAS) got me thinking we should have a discussion about calculating client LTV and then codify a framework around it.
The referral program’s rewards of between 5%-10% of the DPI asset value driven given out in INDEX mean that with DPI streaming fees to Coop of 0.60%/year we’re accounting that the pay back will be between 8.33-16.67 years of holding DPI (assuming no other Index Coop products bought and held).
As the simple ROAS model shows, even if we achieve a solid Click Through Rate (CTR) on our ads and conversion rate on our landing page, if we account that the client only holds DPI (according to some median behaviors) for one year, it’s hard to make ads pay. But, if we assume holding periods of more than one year and clients buying more Index Coop products, ROAS becomes positive.
Given we’re building an investment funds platform - and noting how other platforms like Amazon and Facebook have financed their growth - I think we need to codify a strategic LTV framework and use this in our ad, content, referral, social, and other channels. I think the major inputs which go into this, which we have some control over, are:
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A number of years of holding period: quality of our product hopefully drives long holding periods. I was thinking 3-5 could be reasonable.
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Purchase of more Index Coop products: quality of our products hopefully also drives purchase of other products after DPI. I was thinking 50% of clients might buy non-DPI products, maybe buying one more each year after the DPI purchase.
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Do we use fund assets and successfully earn revenues doing productive things with them, similar to TradFi index managers?
There’s obviously other inputs into the simple ROAS model we cannot control, such as price of DPI. And, other inputs we can discuss, such as average DPI unit holding size (I used median, which is potentially conservative. Thanks to @jdcook for help here) and streaming fee % of other products to the Coop.
Ultimately, with @dylan and @ztcrypto’s purchase event tracking infra (nearly built) we can see what asset value and streaming revenue is specifically driven from which campaign, but we still need an LTV framework to evaluate that against.
Owls: what do you think:
A) We should use as inputs for 1 and 2?
B) We should assume for revenue generation of fund assets via productive uses?
C) Other considerations are for the Index Coop for codifying LTV?
Will be great to discuss and this and align on a framework.
…
UPDATE:
Here’s a strawman for reference using some average (median) client behaviors:
DPI:
- DPI holding of average client (median): 2.5 units
- DPI price: $400 (this is subject to quite rapid change)
- USD value of DPI held by average client: $1,000
- DPI streaming fee to Coop: 0.6%/year
- Streaming fees from average client - Year 1: $6
- 3 Years DPI streaming fees/client: $18, 5 Years: $30
CROSS SELL INTO OTHER INDEX COOP PRODUCTS:
- Rate average client buys more Index Coop products: 50%
- No. of extra products available during holding period: 4 (this is conservative, IMO - could be quite a bit more)
- Other product holding size: same dollar value of DPI holding - $1,000
- Other product streaming fees to Coop: 0.6%/year (could be more of less, depending on products being harder/simpler to execute and their streaming fees)
- Other product streaming fees from average client - Year 1: $6
- 3 Years other product streaming fees/client: $18, 5 Years: $30
CLIENT LTV:
- 3 Year holding period: $36, 5 Year: $60
NON-STREAMING FEE REVENUE:
- How much could the Coop make leveraging fund assets as TradFi index managers do?
- Assumption: 0.6% (other Owls might have stronger ideas here. Looking at you especially @overanalyser)
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- 3 Year holding period: $36, 5 Year: $60
COMBINED LTV:
- 3 Year holding period: $72, 5 Year: $120
(If the price of DPI (/other products) goes up 1x, 2x, 3x, these numbers change drastically).
