Want to look smart when talking to investors AND do your startup a favour at the same time?
Make sure you are on top of your CAC, LTV, and CAC Payback-period game.
5 must-do's below:
Make sure you are on top of your CAC, LTV, and CAC Payback-period game.
5 must-do's below:
1) The only CAC that matters: Fully loaded
Fully loaded CAC =
All Costs to Convert (including costs for prospects that did not convert) / Converted Customer
All Costs = The cost of advertising, marketing, sales, support during the free trial, on-boarding costs, etc.
Fully loaded CAC =
All Costs to Convert (including costs for prospects that did not convert) / Converted Customer
All Costs = The cost of advertising, marketing, sales, support during the free trial, on-boarding costs, etc.
2) Segment, Segment, Segment
Break down your CAC on different acquisition channels.
It will show which channels are better than others, and which ones you should modify.
And IF you present Blended-CAC (paid + organic) always show Paid-CAC as well to give the full picture.
Break down your CAC on different acquisition channels.
It will show which channels are better than others, and which ones you should modify.
And IF you present Blended-CAC (paid + organic) always show Paid-CAC as well to give the full picture.
3) In most cases don't assume decreasing CAC...
...best case assume stable.
Yes you will probably refine your marketing & sales over time.
However it is also likely that your first customers have the best PMF and are easier to convert.
Better to be conservative.
...best case assume stable.
Yes you will probably refine your marketing & sales over time.
However it is also likely that your first customers have the best PMF and are easier to convert.
Better to be conservative.
4) Set a reasonable timespan for LTV
If your churn is low your Life Time might look very long.
Instead of leaning too much on the formula make a reasonable assumption and be upfront about it.
By doing so you will decrease the risk of overestimating the LTV.
If your churn is low your Life Time might look very long.
Instead of leaning too much on the formula make a reasonable assumption and be upfront about it.
By doing so you will decrease the risk of overestimating the LTV.
5) Complement with CAC Payback Period
If LTV / CAC works well for profitability, Payback Period is fantastic for liquidity and growth
Basically it shows the risk of pre-recovery churn.
Long Payback = Higher risk that customers will churn before achieving profitability
If LTV / CAC works well for profitability, Payback Period is fantastic for liquidity and growth
Basically it shows the risk of pre-recovery churn.
Long Payback = Higher risk that customers will churn before achieving profitability
+ Yes being smart in front of investors is good.
But being smart in front of yourself and employees even more so.
Deep understanding of your unit economics, liquidity, and growth will save you a lot of sleepless hours.
Just do yourself the favour.
But being smart in front of yourself and employees even more so.
Deep understanding of your unit economics, liquidity, and growth will save you a lot of sleepless hours.
Just do yourself the favour.
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