One thing influencers and creators almost never do, is paid ads. Even if you’re not directly spending money to grow, through your time, and the other channels you may use, you are spending money to be a creator.
One of the most important single numbers to help you understand how much you can spend to grow, is the lifetime value of a subscriber, or LTV. LTV answers the question “How much can I earn for each and every single subscriber I get?”
And another important number is the Average Revenue Per User. This number typically answers the question: How much money did each subscriber earn me this year?
While figures like Earned Media Value (EMV) can help you gauge your value. LTV measures the value of each of your subscribers.
Businesses use these numbers, LTV and ARPU, to understand what they can spend to gain a new user. Businesses need to know the Lifetime Value or LTV, of a customer and more importantly, Average Revenue Per User (per year) because they have a set amount of money which the raised and need to spend that in the most efficient and effective way possible to gain customers.
For instance, if you knew that each new subscriber could earn you 50 cents within the next year. It’s easy to spend at least of $100 or more each month on making content that will net you 1,000 more subscribers each month. At that rate, you would be spending 10 cents for each subscriber.
Some businesses, even make the hard decision to spend more than a user will make back in a year, or even sometimes they’ll surpass their Lifetime Value of a user. They do this if they understand that new users are hard to get or will provide more benefit to them in the long run. (Referrals, Word of Mouth, Can upsell years in the future, etc.)
Your customers are your followers, your fans, your subscribers, your audience.
When should you figure out these numbers?
LTV or Lifetime Value, is something you should recalculate at least once a year. ARPU, or Average Revenue Per User, is a number you should have at least once a year, and honestly it’s helpful to figure out the new number every month.
Because you can then gauge if your efforts have paid off or if you are becoming less efficient.
Knowing is half the battle. I will try to cover a few situations where your Cost of acquiring a subscriber is larger than your LTV or your ARPU. And it might be okay. But most of the time, it’s not okay and you need to change your business’s structure immediately to keep it sustainable.
Calculating LTV and ARPU periodically can keep you abreast of any red flags as you grow, and inform you of options such as paid ads, or how much to spend on hiring help, assistants, business managers, editors, etc.
First, collect these numbers.
Here are a few numbers you’ll need to know from your own business. If you don’t have them right now but do know you have them, check out the formulas in this article first. Then come back later, when you have the real numbers. I’ve included a few different example situations you might find yourself in.
What you’ll need
- Your total follower count on each platform.
- Your total revenue, ever. From brand deals, Tips, Donations, Subscriptions, Adsense, Merchandise, Digital Products.
- Your Yearly Revenue (2019 is best since it’s probably tax time now and you may have that number available)
Let’s start with an example of someone who focuses 100% on YouTube. They may have other platforms with a negligible audience. They spend 100% of their time making videos, and point all their channels to YouTube. Also, they make money only from a single source, Adsense.
- 50,000 YouTube Subscribers
- $3,900 AdSense in 2019
- $9,300 Total AdSense
ARPU = 2019 Revenue / Subscribers
ARPU = 7.8 Cents = $00.08
LTV = Total Revenue / Subscribers
LTV = 18.6 Cents = $00.19
Here are example numbers for someone who creates content on a number of different platforms. They have a good subscriber base on YouTube and in addition have expanded how they connect with subscribers into a newsletter. In addition to adsense they sell shoutouts and have a number of small brand deals. Just in 2019 they started adding Affiliate links to products they like, and created an on-demand merch line at the end of the year so only has seen a month or two of revenue from that.
Subscribers and Followers
- 50,000 YouTube Subscribers
- 4,000 Twitter followers
- 11,000 Instagram Followers
- 5,000 Newsletter Subscribers
- Total = 70,000 Followers
- $2,400 AdSense
- $670 Brand Deals, Shoutouts
- $450 Affiliate Sales in Newsletter
- $215 Donations / Tips
- $125 Merch (on demand t-shirt sales)
- 2019 Revenue = $3,860
- $12,400 AdSense
- $1,900 Brand Deals, Shoutouts
- $450 Affiliate Sales
- $325 Donations / Tips
- $125 Merch (on demand t-shirt sales)
- Total Revenue = $15,200
ARPU = 2019 Revenue / Total Followers
LTV = Total Revenue / Total Followers
ARPU = $3,860 / 70,000 Followers = 5.5 Cents = $00.06
LTV = $15,200 / 70,000 = 21.7 Cents = $00.22
This example in comparison to example A, has a higher Lifetime Value, but their yearly revenue per subscriber is lower. This is not at all a bad thing because they just started this year two revenue streams. Each of these new revenue streams can still be optimized. And overall they are still growing.
They even can go one step more to find out which platform is doing better than others.
Let’s figure out the ARPU just on their newsletter.
$450 revenue from their newsletter, with 5,000 subscribers.
That would be: $450/5,000 = $00.09
It’s getting 9 cents per subscriber. Which is 50% higher than their overall ARPU.
This means, a newsletter subscriber is worth more than an average user.
If they can, I’d recommend mentioning the newsletter more and more to their current subscribers. Also if the newsletter subscribers are willing to click on affiliate links. I wonder, How could those affiliate links perform in the description of youtube videos? That will be well worth a test. I’d like to see if a YouTube subscriber could be interested in those same products.
Also this creator should consider extending brand deals to the newsletter readers and thus charging more for a brand deal when it makes sense. This creator can use the data they already have from existing affiliate links to make the case that brands want to advertise to the newsletter subscribers in addition to the YouTube viewers. Advertisers, many times, want multiple touch points with customers.
NOTES ON TOTALS
You can include the total value of products & services you got for free since you started. This could help you figure out the total value, not total revenue. Add in the value of any trips you got, or events you get into. Just know that the final LTV and ARPU you get is “value” not “revenue”. So it doesn’t show your cash in hand. But you can use this number to figure out if a free product is worth the effort as you grow. Perhaps you can subtract the price of a product from your Total Value… and use that to suggest a paid brand deal in addition to a free product.
When finding your total subscribers, add in every single platform you create content for. Podcasts, newsletters, instagram, twitter, facebook page, twitch, youtube. Every single one counts for this.
Make a note of these numbers in a document. Revisit it, at least, each year.
Compare yourself against some major companies
- Facebook ARPU: $7.26
- Morning Brew (a newsletter): $4
- Reddit: $00.30 .Yes thirty cents.
Some companies sell high ticket products. They are going to be in the hundreds of dollars per user or customer. Some creators who have a consulting business or sell online goods may have a number in the high twenties or fifties or even hundreds of dollars per subscriber.
If you are doing this for the first time, don’t be discouraged by low number of cents per subscriber. Use it as a starting point to figure out where you can get better value and increase your total revenue.
What Percent of my LTV should I spend on subscriber acquisition?
Traditional startups spend up to one third of their LTV to acquire a Customer. You don’t have to do the same. Sometimes you can spend way less, because you have other organic ways that you are growing. And one third of your income may not be spendable, if you’re a full time creator.
Also, there is no guarantee that what you spend money on will net you the same followers and subscribers. But you can definitely test it out.
For example, I knew I wanted to gain 1,000 subscribers to a newsletter that I was earning around $4 a year per subscriber from. I spent $1,000 on Facebook ads, ended up getting over 1,000 subscribers from it, but in the past 2 months almost none have turned into additional revenue. It was my other efforts that netted me much more revenue. And I do not regret the spend because now I have over 5,000 subscribers and can market that over the next year to potential advertisers.
In another effort to gain subscribers, I spent $125 on an illustrator to make a piece of content better than I could myself. That piece of content ended up gaining me over 700 subscribers. That’s about 18 cents per subscriber. Far below the $1 I was willing to spend.
As you can see from my example, using LTV and ARPU helps you make better long term decisions even if the short term feels painful. Hiring an editor now, may feel like a lot of work, but enable you to divert a larger portion of your time negotiating higher and more involved brand deals.
Startups in growth phases make a strategic choice to spend one third, or more of their LTV of a customer on acquiring new customers.
Some early startups in high growth phases can spend over 100% of LTV on User Acquisition. These startups consider that they can increase LTV the longer a user stays with them. Also they may have plans to build higher revenue channels and need the users now to sell to later.
I like to use one third of the Yearly stat, ARPU to figure out how much I should spend to acquire a new subscriber, right now.
Also it’s very important to revisit this number.
If you spend money to grow and don’t see extra revenue per subscriber, you could grow your channel and actually decrease your average revenue per subscriber.
A simple but not easy step then is to create more revenue streams for your existing subscribers.
And a complicated & hard problem is to allocate more spending to the right acquisition channels for subscribers.
This framework should give you an added advantage knowing exactly how much and where to apply your money to grow. And then even a way to measure if those tactics have successful.