Let’s say the success of your business depends on growing a thriving user base. In order to grow such a user base, you will need to advertise your product through online marketing channels. The problem arises when your marketing team is unaware of the quality of new users being acquired, and if the price (known as cost-per-acquisition or CPA) being paid for each new user (also called lead) is fair and accurate.
Surely, no two users are alike, some will subscribe to your product and drop out without ever using it, while some will be incredibly active, fueling your product engagement metrics month over month and bearing plenty of opportunities for cross-sales, up-sales or referral bonuses. The value of a user is measured according to their LTV, or lifetime value, which is the metric used to predict the net profit attributed to the entire future relationship with a user. Undoubtedly, users that stick with you out of loyalty or habit (users with high LTV) are worth more than the ones that ghost you right after signing up (ones with low LTV).
Fraud organizations have become so sophisticated and high-tech that lead fraud often goes unnoticed. For example, let’s say your ideal users, the ones with high LTV are mainly based in the USA. Unfortunately and unbeknownst to you, some of your traffic sources are fraudulent, they use a VPN proxy to mask the origin of the traffic and make you believe that those new users or leads you are paying for are based in the USA, when they are actually fake signups generated by a bot in Asia. This happens more often than we think.
This is how both the marketing team and the product team could be blindsided by online ad fraud, which skews both marketing acquisition metrics like CPA and product metrics like LTV or active user ratios. So not only is the marketing team tricked into allocating budget to acquire useless leads but the product team ends up with inaccurate metrics.
LTV is where Marketing and Product meet. Thanks to a well-calculated and granular LTV (down to traffic source), marketers can determine if traffic sources are bringing high quality users and can allocate reasonable CPAs for each source of traffic. This leads to reaping a higher return on investment, of course. At the same time, product managers benefit from real user engagement metrics, hence, develop and optimize the product with substantially better data. LTV is a crucial metric to determine not only the marketing spend and resource allocation but also to craft a superior product strategy.