Question

1. I want you to try and figure out the LTV (lifetime value) of a customer who buys a raft that costs $1,695. Assume a 100% margin (while selling direct) and that the average customer only buys one boat in their lifetime.

2. Then based on that, try and estimate how much it would be reasonable to spend on bringing a new customer on board. That is the cost per acquisition.

Answer 1

LTV= Revenue generated by a single customer

Cost per Acquisition of customer: average expenses of gaining a single customer

A good ratio of LTV:CAC = 3:1

Now as per above explation we can say that:

LTV= Revnue * purchase Frequency of boat

= $1695*1

= $1695

CAC= 1695/3 ( As per LTV: CAC =3:1)

= $ 565

Therefore we can see that Average customer Lofetime Value is $1695 and Cost per acquisition is $565.

  

The best rule of thumb is spending 33% or less of your customer’s lifetime value.