Understanding Key Marketing Metrics

Intro

• Struggles to understand marketing numbers, KPIs, CPC, CAC, CTR, etc.
• Simplifying to three essential numbers
• Aimed at helping businesses with conversions and decision-making

Three Essential Numbers

1. Cost of Acquisition (CAC)

• CAC = Total cost to acquire a customer
• Includes: sales commission, ad spend, marketing team, software

2. Lifetime Value (LTV)

• LTV = Total gross profit over the customer lifespan
• Not total revenue, but gross profit
• Example: Selling food with a 10% margin
  • $700 revenue, $9 cost means $70 gross profit

3. 30-Day Cash

• Also known as Payback Period
• How long to recoup CAC
• Credit lines allow 30 days interest-free
• Aim for 30-day cash equal to or greater than CAC

Key Relationships

LTV to CAC Ratio

• Aim for greater than 3:1
• Example: 80% gross profit, $800 LTV
  • $800 / 3 = ~$266 CAC
• CAC should be under $266

30-Day Cash to CAC Ratio

• Aim for at least 1:1
• Use other people’s money (OPM)
• Break even on acquisition within 30 days

Visual Example

• Cost: $200 CAC, initial negative balance
• Customer spends $50 initially, still negative
• By day 30, customer spends $200, breaking even
• Additional revenue on day 60, 90, 120, etc.
• Long-term profit for “free” after break-even point

Summary

• Always track: CAC, LTV (gross profit), 30-Day Cash
• Ensure 30-day cash ≤ CAC, LTV ≥ 3x CAC
• Optimize first 30 days' revenue for breakeven

Additional Tips

• Fix metrics below target
• Upsell within first 30 days
• Consider ancillary products, special offers
• Aim to widen acquisition net by improving 30-day cash

Conclusion

• Aim to make decisions based on these key metrics
• Use empirical, quantitative data to guide actions
• Strategies to enhance business growth