I have heard many business owners complain to me that their ads did not work and they gave up. Some say their marketing or advertising is not working. From my experience, the majority of these business owners face this problem because they do not understand two very important numbers that I am about to explain.
Yesterday, I posted a 30 second video defining these numbers and mentioned why they matter. I received feedback asking me to explain more, so that is why I am writing this. Letโs get started.
These two numbers are Lifetime Value (LTV) and Customer Acquisition Cost (CAC). They may sound big, but trust me, they are simple to understand.
Letโs start with Lifetime Value, or LTV. This is the total amount a customer will spend in your business over time. If you own a bakery for example and someone buys bread priced at 50 every week for a year, that one customer will bring you 2,600 in total. That is their lifetime value to your business. Most owners only look at the first sale and forget how much a happy customer can spend over months or years.
Now letโs look at Customer Acquisition Cost, or CAC. This is how much it costs you to get a new customer. For example, if you run a Facebook ad and spend 500 to get 10 new customers, your CAC is 50 per customer.
Here is why this matters. If your CAC is 50 and the customer only buys once for 30, you are losing money. But if that customer stays and buys again and again, you make more than what you spent. That is where LTV comes in. If you can keep customers coming back, your profit grows.
So how can you use this in marketing and advertising? Before you spend on ads, know your numbers. Ask yourself, how much do I spend to get one customer and how much do I make from them in the long run? This will help you plan better and avoid wasting money.
The recommended LTV to CAC ratio is ideally 3 to 1, meaning the lifetime value of a customer should be three times the cost to acquire that customer.
To increase LTV, keep customers happy so they stay longer. Give them a reason to return. I call this customer imprisonment, and I say it jokingly because it simply means locking them in with value. You can also upsell. For example, in that bakery, instead of selling only bread, you can also add spreads like jam, butter, or honey. This increases what a customer spends.
To reduce CAC, get referrals from happy customers. They will tell others about you and that is free marketing. You can also create free content on social media instead of relying only on paid ads. And if you increase LTV, your CAC becomes more sustainable because each customer gives you more value over time.
I love talking about marketing and business. If you would like to have a meeting or call where we can talk more about this and other ways to grow your business, get in touch with me and we can make arrangements.
I believe if more small businesses understand these two numbers, they can grow faster and spend less. What do you think about this? Do you track LTV and CAC in your business? Let me know in the comments.
Maimbo Hakooma
๐ง๐ต๐ฒ ๐ง๐๐ผ ๐ก๐๐บ๐ฏ๐ฒ๐ฟ๐ ๐ ๐ผ๐๐ ๐๐๐๐ถ๐ป๐ฒ๐๐ ๐ข๐๐ป๐ฒ๐ฟ๐ ๐๐ด๐ป๐ผ๐ฟ๐ฒ ๐จ๐ป๐๐ถ๐น ๐๐โ๐ ๐ง๐ผ๐ผ ๐๐ฎ๐๐ฒ.
I have heard many business owners complain to me that their ads did not work and they gave up. Some say their marketing or advertising is not working. From my experience, the majority of these business owners face this problem because they do not understand two very important numbers that I am about to explain.
Yesterday, I posted a 30 second video defining these numbers and mentioned why they matter. I received feedback asking me to explain more, so that is why I am writing this. Letโs get started.
These two numbers are Lifetime Value (LTV) and Customer Acquisition Cost (CAC). They may sound big, but trust me, they are simple to understand.
Letโs start with Lifetime Value, or LTV. This is the total amount a customer will spend in your business over time. If you own a bakery for example and someone buys bread priced at 50 every week for a year, that one customer will bring you 2,600 in total. That is their lifetime value to your business. Most owners only look at the first sale and forget how much a happy customer can spend over months or years.
Now letโs look at Customer Acquisition Cost, or CAC. This is how much it costs you to get a new customer. For example, if you run a Facebook ad and spend 500 to get 10 new customers, your CAC is 50 per customer.
Here is why this matters. If your CAC is 50 and the customer only buys once for 30, you are losing money. But if that customer stays and buys again and again, you make more than what you spent. That is where LTV comes in. If you can keep customers coming back, your profit grows.
So how can you use this in marketing and advertising? Before you spend on ads, know your numbers. Ask yourself, how much do I spend to get one customer and how much do I make from them in the long run? This will help you plan better and avoid wasting money.
The recommended LTV to CAC ratio is ideally 3 to 1, meaning the lifetime value of a customer should be three times the cost to acquire that customer.
To increase LTV, keep customers happy so they stay longer. Give them a reason to return. I call this customer imprisonment, and I say it jokingly because it simply means locking them in with value. You can also upsell. For example, in that bakery, instead of selling only bread, you can also add spreads like jam, butter, or honey. This increases what a customer spends.
To reduce CAC, get referrals from happy customers. They will tell others about you and that is free marketing. You can also create free content on social media instead of relying only on paid ads. And if you increase LTV, your CAC becomes more sustainable because each customer gives you more value over time.
I love talking about marketing and business. If you would like to have a meeting or call where we can talk more about this and other ways to grow your business, get in touch with me and we can make arrangements.
I believe if more small businesses understand these two numbers, they can grow faster and spend less. What do you think about this? Do you track LTV and CAC in your business? Let me know in the comments.
1 day ago | [YT] | 1