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If your Lifetime Value is only "bigger" than your Customer Acquisition Cost, chances are you're still going to be operating at a loss. A healthy aim is an LTV
by mootothemax 10y ago
If your Lifetime Value is only "bigger" than your Customer Acquisition Cost, chances are you're still going to be operating at a loss.
A healthy aim is an LTV of three times your CAC: LTV > (3 x CAC)
That way - and remember that we're not talking hard figures here, just rough estimates - you're still aiming to cover your operating costs in addition to "just" gaining customers.
- ssharp 10y agoYou have to have a grasp on your cash flows as well. LTV takes X years to be a fully realized revenue but CAC is an immediately realized expense. The fun businesses are the ones with CAC below immediately realized revenue. They can fund their own growth much faster.
- kareemm 10y agoThat's true for subscription SaaS, but it's not necessarily true for other business models.
- sharemywin 10y agoBut, a lot of business take years to figure out LTV. And investing in good customer service improving the product can all lead to a much better LTV. Also, there are many ways cut CAC in half possibly.
- mistermann 10y agoI always ask myself this whenever it is asked on Dragon's Den....could someone explain how customer acquisition cost is calculated? The "common sense" approach I'd think is something like: (sales & marketing spend) / (customer count) ....but this would completely ignore whether the spend was efficient, so is there a more sophisticated way of calculating CAC?
- sharemywin 10y agoif you can break out where your customers come from(which channel) you can get some idea of what the channel is contributing. but it even that's a little misleading because it's hard to get referrals if you don't have customers in the first place, so where do those get attributed to.