CAC to LTV Ratio
Customer Acquisition Cost (CAC) vs Lifetime Value of the Customer (LTV)
If you can record this data and understand it, it can be the single largest factor for scaling your business Rapidly!
You want your LTV for a customer to be a minimum of 2-3x your acquisition cost for the customer.
Once you have a way to achieve this inside your business, if you can figure out how to get the CAC back out of each customer reliably in the first 30 days,then you are able to use Credit at 0% interest to acquire your customers.
This effectively would make your CAC FREE! Giving you the ability to create EXTREME revenue growth and valuation for your business.
Cool, Sounds great…. But HOW?? Is what I’m sure you are asking..
So let’s work through this step by step in an example.
Example: You run Facebook ads to acquire customers, and you know that 100$ in ad spend gets you 1 new customer after running ads for a few weeks.
So now we have CAC for that sales/marketing Channel.
Now we need the LTV for that customer to be $200-300 in yearly spend and you have to get the first 100$ of profit out of them in the first 30 days.
Setting up an agreement/sales system where you make at least $100 profit, up front, on your product or service will achieve this.
Once this system is reliable after a couple weeks, or months of testing you can pull the trigger on financing the $100 of facebook ad spend you need to acquire each customer.
The Higher multiple you have for LTV to CAC, the more valuable to investors, and profitable your business will be. Individuals or Firms looking to acquire businesses wont even look at them if their LTV to CAC ratio is not at least 3.