Dave_NumberOne
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50%
- Feb 6, 2016
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Real talk. I keep it simple and straight. The most fundamentally important metric for any business growth is this one. Other things matter too but if you dont get this right, you just cant make a real business out of it.
LTV:CAC ratio
LTV= lifetime gross profit you make with a customer
CAC= your cost of acquisition for a customer
the ratio should be at least higher than 3
example for my business (which went from 0 to 250,000k per month in lass than 3 years with no investment/loan, just 2,500 usd in the beginning)
10,000 LTV : 1,000 CAC = 10
---> means everytime i spend an average of 1,000 USD I get 10,000 USD gross profit out of it. If this fundamental metric is 3< you might have a business that can be scaled quickly with paid advertisement. If it is below 3 and cannot be increased somehow, you would probably be better off doing something else. Since you often dont know in the beginning you should be sure that its at least bigger than 5, since real world results tend to be worse than your imagination in the beginning
LTV:CAC ratio
LTV= lifetime gross profit you make with a customer
CAC= your cost of acquisition for a customer
the ratio should be at least higher than 3
example for my business (which went from 0 to 250,000k per month in lass than 3 years with no investment/loan, just 2,500 usd in the beginning)
10,000 LTV : 1,000 CAC = 10
---> means everytime i spend an average of 1,000 USD I get 10,000 USD gross profit out of it. If this fundamental metric is 3< you might have a business that can be scaled quickly with paid advertisement. If it is below 3 and cannot be increased somehow, you would probably be better off doing something else. Since you often dont know in the beginning you should be sure that its at least bigger than 5, since real world results tend to be worse than your imagination in the beginning
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