Metrics How To: Ratio of Customer Lifetime Value to Customer Acquisition Cost
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METRICS HOW-TO Ratio of Customer Lifetime Value to Customer Acquisition Cost (LTV:CAC) A publication of
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Transcript of Metrics How To: Ratio of Customer Lifetime Value to Customer Acquisition Cost
METRICS HOW-TORatio of Customer Lifetime Value to
Customer Acquisition Cost(LTV:CAC)
A publication of
Do you know the valueof your customers?
?
Customer Acquisition Cost (CAC)! Prerequisite:
More specifically, do you knowthe value of your customers
throughout their lifetime with youas it compares to what you spent
to gain those customers?
?
The LTV:CAC metric is theanswer to those questions…
What is Ratio ofCustomer Lifetime Value toCustomer Acquisition Cost?
LTV:CACis an estimate of the total value yourcompany receives from each clientin comparison to what you spent
to acquire that client.
Why LTV:CACis so Important.
LTV:CAC allows you to easily defineyour Return on Investment (ROI)performance and develop a more
educated growth strategy.
How to DetermineYour LTV:CAC
(Customer Revenue in a Period of Time – Gross Margin)÷ Estimated Churn % for that Customer
1Find Your Customer Lifetime Value
(Customer Revenue in a Period of Time – Gross Margin)÷ Estimated Churn % for that Customer
1Find Your Customer Lifetime Value
2Compare this to Your Customer Acquisition Cost LTV:CAC
(Customer Revenue in a Period of Time – Gross Margin)÷ Estimated Churn % for that Customer
1Find Your Customer Lifetime Value
2Compare this to Your Customer Acquisition Cost LTV:CAC
LTV = $500,000CAC = $150,000LTV:CAC = $500,000:$150,000 = 3.3 to 1
Example…
Congratulations!You’ve now mastered the metric LTV:CAC.
