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.