Nate Tilley explains why gross lifetime profit matters more than gross revenue when calculating customer lifetime value in e-commerce. He recommends keeping your customer acquisition cost to LTV ratio at 3:1 or better, unless you have strong backend monetization to support higher spending.
No less than 3:1
You know, in the big broad brushstrokes at the top of the pyramid, you've got customer acquisition cost and ltv and they're the things that you kind of look at. Then you've got net margins on that. To understand when some people talk about ltv, they're talking about gross lifetime profit. Some people are just talking about gross revenue. Right? You want to look at gross lifetime profit for the business, especially in E Comm. Because you have to factor in your margins on it. On a lead gen business, it's a little bit more fluid because your direct costs will change by giving a whole bunch of different things. And then you to understand, okay, what is the relationship? What is the ratio between my customer acquisition cost to my ltv? Right. So if those numbers are positive and you know by positive you're really looking at no less than a 3 to 1. When I say 3 to 1, that's if like you don't have like a real crazy back end to the business and you don't really maximize the complete value of a buyer that comes into your business.
