Have you heard the question “what’s your LTV/CAC ratio” and wondered – what the ? I’m just trying to build a business here!

You may have thought to yourself “ruh roh – I have no idea what that means!

Don't worry! I share with you what these acronyms mean, why they’re necessary for your business, and how to calculate them.

As a founder, you have to lift “know your numbers” weights. It’s part of your hands-on training, and the LTV/CAC ratio is a valuable calculation to help you create a successful outcome for your business.

Why? Because it reveals your marketing return on investment (ROI)

In other words – it lets you know if you’re throwing money away on your business or if you’re investing your marketing dollars wisely.

If you’re raising capital or applying for a line of credit, you’ll need to know this number.

Below is the example I promised for a practice calculation. Have fun and let me know if you have any questions - cheers!

Ande 💙

#LTVCACratio #youtubechannelforstartups

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EXAMPLE CALCULATION:

Let’s say your business’s revenue for one year was $100,000.

During the period, you had 400 unique customers who made a total of 500 purchases. Your average customer lifespan is 10 years.

First, calculate your average purchase value by dividing your annual revenue by your total purchases:
Average Purchase Value = $100,000 / 500
Average Purchase Value = $200.00

Next, calculate your average purchase frequency by dividing 500 purchases by 400 unique customers.
Average Purchase Frequency = 500 / 400
Average Purchase Frequency = 1.25

Finally, plug in your numbers into the customer lifetime value formula:

CLV = (Average Purchase Value – Average Purchase Frequency) X Average Customer Lifespan
CLV = ($200.00 – 1.25) X 10
CLV = $1,987.50

Your average customer will spend $1,987.50 at your business over the course of their relationship with your company.

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