31 Dec

Business Planning for CAC & LTV

You have a business concept, you have a vision for your company, and you have formalized a sales process resulting in an increased success rate from prospect to closure. Now what?

In business, processes and strategies must be continuously improved upon depending on their efficiency, effectiveness, and scalability. While the sales process is adjusted on a continual basis, consistent analysis of both your potential and current customers will provide further insight as to your current business health and future growth potential.

Customers can be valued based on three distinct (segments):

Real Value – What has a customer spent?

Expected Value – What will a customer spend?

Potential Value – What could a customer spend?

Understanding the potential value of your customers will enable you to better adjust your customer acquisition strategy (both sales and marketing) and price out a viable Customer Acquisition Cost (CAC).

A customer’s Lifetime Value (LTV) is determined based on the average revenue per customer, average customer lifetime, and the annual costs to support each customer. Compared to the CAC, the LTV needs to meet or exceed the CAC to remain a sustainable business.

CAC strategies differ based on a business’s industry, target audience, age, location, etc. While we have previously reviewed sales process formation techniques, in the following month we will examine a number of strategies and specific case studies to create inbound sales leads, develop a clear understanding of varying CAC depending on industry, and determine how to use traditional PR to target your audience and not waste earned media.

If you have any recommendations on topics to review, I would greatly appreciate you leaving a comment or contacting me today.

  • Thanks for the post Keith! The most difficult aspect when starting a business is to find the right channel to acquire customers and then, to keep it. Cheers

  • Miguel, thanks for the comment. I completely agree that finding – through measured trial – the right channel for customer acquisition is one of the most difficult aspects of starting a business. However, in regards to sustaining acquisition through a single channel, I would have to disagree. Customer acquisition is not a static tactic, a business must adjust to market shifts, competitors, consumer buying behaviors, etc. A business must be agile to succeed.

  • Hi Keith, totally agree. Just wanted to stress that, after having found the channel through which you get a customer, the second most difficult step is to retain this customer.
    Agile business management is a must nowadays