Ryan Shank walks through how to calculate Customer Lifetime Value and Customer Acquisition Cost, then the ratio between them. With $200 average revenue per customer and a 20-month lifespan, LTV is $4,000. Acquisition costs $625 per customer, yielding a 6.4x ratio: $6.40 earned for every $1 spent on acquiring customers.
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Alright guys, welcome. My name is Ryan Shank. We're gonna go over one more video. In our last video, we talked about the payback period, how long it takes to pay back the cost to acquire a new paying customer. Today, in this video, we're gonna go over how long or how much it costs to acquire a paying customer versus the lifetime value of that customer. So, what we found out in our last video is the average revenue per customer is $200, okay? So average revenue per customer, and if we know that the average customer stays around for about 20 months, so the LTV LTV, LTV is $4,000, okay? $4,000. And again, we got that by multiplying the revenue per customer, which is $200, times 24, or times 20, I'm sorry, times 20, an average of 20 months. The way you're really supposed to do it is look at the retention curve over 3 years and then add up each of those, but for simplicity's sake, we're just gonna say $200 per sale times 20 months, okay? $4,000 is the average lifetime value per customer. We know that the cost to acquire this $4,000 lifetime value customer is $625, okay? 'Cause we paid $12,500 in sales rep salaries to acquire 20 sales. So the cost to acquire the sale, $625. So that's the customer acquisition cost, $625, okay? So our CAC, cost to lifetime value ratio, is simply gonna be 4,000 divided by 625— I'm sorry, let's cut this. So the CAC to LTV ratio is simply gonna be $4,000 divided by $625, okay? So I'm gonna do the math for you, 'cause I know you wanna do the math. So $4,000 divided by $625 is 6.4x, okay? So this is gonna be our CAC to LTV ratio, 6, whoa, $4,000 divided by $625, 6.4, 6.4x. 6.4x. So this is going to be the return on our investment. So we spend a one-time $625 to acquire $4,000 over the lifetime of the customer. That's 6.4x. Okay, that's really, really good. These are our metrics. This is how you determine lifetime value of a customer versus the acquisition cost of a customer, and then the ratio CAC to LTV. It's a really important ratio in subscription businesses and SaaS businesses. This is what ours looks like.
