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If the acquisition cost of a customer is less than life-time value of the customer you should pay. Otherwise not. Generally the life-time value of a customer (
by mixmax 18y ago
If the acquisition cost of a customer is less than life-time value of the customer you should pay. Otherwise not.
Generally the life-time value of a customer (how much money you make on an average customer in the time you do business together) is an important metric that you would want to estimate anyway.
- mediaman 18y agoSubject to liquidity constraints. If you have a product that has regular payments from a customer, and customers stay customers for a long time, creating a high lifetime value, then it is likely that there are many marketing activities that exceed lifetime value but will take six months or more to break even. Some marketing activities have the above characteristic but require a sizable minimum investment, such as ad campaigns. This limits your ability to implement them. This constraint doesn't apply to public (or large) companies who can raise whatever money they need if they have a high value marketing activity to invest in. I would also add that many people don't necessarily have the operating history to know what lifetime value is, so they begin making assumptions, and the assumptions are almost always too optimistic. This can lead to excessive marketing.
- mixmax 18y agoGood point about the liquidity restraint. I hear banks aren't that friendly nowadays.