Interesting article: What does it really cost you to bring you a sale?

[Eskil]

Here is an interesting read I thought many of you could find useful.
Startup Killer: the Cost of Customer Acquisition | For Entrepreneurs

Business model viability, in the majority of startups, will come down to balancing two variables:

• Cost to Acquire Customers (CAC)
• The ability to monetize those customers, or LTV (which stands for Lifetime Value of a Customer)

Successful web businesses have long understood these metrics as they have such an easy way to measure them. However there is a lot of value in looking at these same metrics for all other businesses.
To compute the cost to acquire a customer, CAC, you would take your entire cost of sales and marketing over a given period, including salaries and other headcount related expenses, and divide it by the number of customers that you acquired in that period. (In pure web businesses where the headcount doesn’t need to grow as customer acquisition scales, it is also very useful to look customer acquisition costs without the headcount costs.)
To compute the Lifetime Value of a Customer, LTV, you would look at the Gross Margin that you would expect to make from that customer over the lifetime of your relationship. Gross Margin should take into consideration any support, installation, and servicing costs.

 

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