Elena Verna

One of the most overlooked metrics in growth is marginal CAC:
 
 Suppose your LTV is $100 and you currently acquire 1,000 customers per month "profitably" at a $50 CAC.
 
 You want to grow 50%.
 
 In general, you know:
 
 1. CAC increases more than proportionally to # customers acquired
 2. LTV decreases while growing from core customers to masses
 3. The "golden rule" is LTV > CAC
 
 Suppose you get the 50% growth you wanted, and you now acquire 1,500 customers monthly at a $75 CAC. Assume for simplicity that your LTV remains $100 (weak assumption).
 
 As your LTV > CAC, you are still creating value, right?
 
 Wrong!
 
 You are actually destroying value, as your mCAC > LTV.
 
 Here is the proof:
 
 mCAC = [(new volume x new CAC) - (old volume x old CAC)] / (new volume - old volume) = [(1,500 x 75) - (1,000 x 50)] / (1,500 - 1,000) = $125
 
 This means that you are now acquiring 500 new customers monthly at a loss, and you were better off remaining smaller.
 
 My "golden rule":
 
 To maximize absolute value created, keep growing until mCAC = mLTV.
 
 I know 10 CMOs who don't look at this metric, you?
 
 #growthmarketing #customereconomics #performancemarketing #ltv #cac