Short for Customer Lifetime Value, that is one of the KPI used by startups to assess whether or not they’re using the right strategy to scale up. In fact, the customer lifetime value tells you how much; on average, a single customer is paying for a product or service before he leaves. For instance, let’s say you sell software for a $10 per month fee. If customers on average keep paying the monthly fee for about six months, then your LTV is $60.
This number is significant because it also tells you how much can you spend on a marketing budget to acquire new customers. For example, if you’re spending $100 on Facebook ads to get one customer that has an LTV of $60, then you’re on the right path to kill your startup. That is why once you’ve figured your LTV you can assess the right CAC.
CAC stands for customer acquisition cost, which is tied to the lifetime value of a customer. In short, those two metrics have to be used in conjunction. Customer acquisition costs can take into account variable and fixed costs. For instance, for a SaaS (Software as a Service) the support is also a vital aspect of retaining a customer.
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