The “LTV” of a Louis Vuitton
The value of a designer handbag — in the sharing economy.
In the technology industry, we talk a lot about Lifetime Value (LTV). This number is a calculation of how much we earn per customer. Generally speaking, these numbers only make sense at scale.
Our company, Threadflip, is part of a distinct category within technology. The terms collaborative consumption, peer-to-peer marketplace, and the sharing economy are a few that come to mind.
In short, it is a business that connects two parties and enables them to transact — sellers earn income from things they have and buyers save money by gaining access instead of ownership or accepting second-hand ownership instead of purchasing brand-new items.
The most amazing thing about the sharing economy, is that our LTV calculation is tied directly to the economic value we create on behalf of our customers (buyers and sellers). If they transact, we all succeed.
Given the nature of our business, we often ask ourselves:
“How much value do we help our customers create for themselves?”
I want to tell Threadflip’s story — and answer the question above — in a unique way, by calculating the lifetime value of a Louis Vuitton.
Louis Vuitton handbags, like all textiles, start in humble beginnings. Pieces of fabric and metal are woven together to produce a finished product. Louis Vuitton has been doing it like this for 159 years.
Once the item is finished, it is sold as a brand new handbag. The Louis Vuitton “ Speedy 25" retails for $855.00 on their website.
Louis Vuitton’s earnings reports state that they have a 45% operating margin, so that would make the economic value of this bag to Louis Vuitton shareholders approximately $382.40, and the other $472.60 of the purchase price are distributed to Louis Vuitton’s partners.
In the average world, this is where the lifetime value calculation would end, at $855. As Anand Iyer’s previous post states, the average U.S. woman uses each item that they purchase for less than a month. This means that a purse that is still valued at $855 retail, is sitting in a idle in closet — after just 30 days.
Now, enter the sharing economics of Threadflip.
The brand-new, minimally-used Louis Vuitton is old news for the original customer but it’s still worth big bucks.
It is listed and sold on Threadflip.
The bag was sold “like new” on Threadflip for $600 + $7 for shipping. This means that another $855 in lifetime value was created.
$480 in cash value goes to the seller, who was the original purchaser; $120 in cash value goes to Threadflip because of our 20% transaction fee;$248 in cash savings goes to the buyer on Threadflip because they bought this bag for $607 instead of paying the full retail price of $855; $7 goes to the United States Postal service for delivering the purchase.
Due to this one resale transaction, the lifetime value of the Louis Vuitton handbag doubles to a respectable $1710. The economic value created isn’t just going to Louis Vuitton this time; it’s going to buyer, seller, Threadflip, and the USPS. If people transact, we all succeed.
Not only does “flipping” increase the monetary value created from each item, but it also increases the societal value of each item as well. There is a small percentage of the population that purchase new Louis Vuitton handbags, but there is a much larger percentage that cannot afford them. The act of flipping an item that is no longer used enables the sharing of joy that comes with owning a coveted item like this.
Did I mention that these bags go through crazy durability testing? They are filled with 8lb weights and then repeatedly dropped on the ground for four days straight. The zippers are rapidly zipped and unzipped up to 5,000 times. They are vigorously shaken to ensure no charms ever break off. Don’t believe me? You should. These things are covetable for a reason.
Now that the second owner has enjoyed the handbag, perhaps for another month or two — it is back in a closet, lonely and cold. It’s still in perfect condition (did I mention how durable these things are?).
The second owner launches the Threadflip iPhone app, goes to her purchase history, and clicks ‘relist’ on the item and it’s back on the market. She’s the second owner, so she decides to lower her asking price a bit to account for that.
The bag sells to owner number three within 24 hours.
Now we’ll run the Lifetime Value numbers again, since another $855 in economic value has just been created and dispersed.
$254.40 in cash value goes to the seller, who was the second owner; $63.60 in value goes to Threadflip because of our 20% transaction fee;$530 in cash savings goes to the buyer on Threadflip because they bought this bag for $325 instead of paying the full retail price of $855; $7 goes to the United States Postal service for delivering the purchase.
After an original purchase and two “flips” over the course of three months, the LTV of this LV is now at a whopping $2565.
Now to final answer our question from above:
“How much value do we help our customers create for themselves?”
In the case of this handbag, the answer would be $1512.40 in economic value plus enabling of two additional people to enjoy it’s beauty. In the case of the items currently for sale on Threadflip and the many more to come, only time will tell.
We are proud to work every day to come up with better answers to that question because when they transact, we all win.
If you want to make these economics your reality, think about becoming a seller by downloading Threadflip for iPhone.
If you want to help make this a reality for others, come join our team and help us build Threadflip in San Francisco.
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