LTV & CAC
Tracking LTV and CAC
Tracking LTV (Lifetime Value) and CAC (Customer Acquisition Cost). These are the two numbers that can completely transform how you look at your business.
LifeTime Value
LTV is the total revenue you get from a customer during the entire time they stick with you. It’s not just the first sale but everything they spend across multiple purchases, subscriptions, upgrades—whatever it is you’re offering. It also includes referrals they might bring in. So, if someone comes in, spends $100 a month for a year, and refers a friend who also spends $200, their LTV might be $1,400.
Customer Acquisition Cost
CAC is what you’re spending to get that customer through the door—advertising costs, promotions, and maybe even the time you’re spending closing deals. For example, if you run an ad campaign that costs $500 and brings in 10 customers, your CAC is $50 per customer.
Why is this important?
Here’s why these two numbers together are so important: they let you measure the health of your business.
Let’s say your average customer has an LTV of $1,000, but you’re spending $800 to acquire them. That means you’re only making $200 profit per customer—and that’s before you even consider your operating expenses. Now imagine if you could spend just $400 to acquire that same customer. You’d double your margin on each one!
But it’s not just about keeping CAC low; it’s also about increasing LTV. For instance:
What if you introduced a loyalty program to get customers to come back more often?
Or an upsell strategy where you offer additional services or products?
Even something simple like post-purchase follow-ups or nurture campaigns can turn a one-time customer into a repeat one.
Here’s an example: A coffee shop might sell a $5 latte. If they think of that customer as only worth $5, they won’t invest much in marketing. But if that customer comes back twice a week for a year? Their LTV is over $500—and that’s just one person! Suddenly, spending $50 on marketing to acquire one customer makes total sense.
Track Your Numbers
Now let’s talk about what happens when business owners don’t track these numbers. Spending too much on acquisition without knowing your LTV, you might end up losing money and not even realize it until it’s too late. But most business owners underspend on marketing because their afraid of the cost, not realizing how much profit thier leaving on the table.
Here’s the ultimate goal:
Boost LTV—by improving retention, increasing the frequency of purchases, or encouraging upsells/referrals.
Lower CAC—by refining your ad targeting, improving your website conversion rates, or using cost-effective marketing methods like eMail and or SMS campaigns.
When you do this, you create a system where every dollar you spend on marketing brings back 2, 3, or even 5 dollars in revenue. That’s when your business really starts to scale.
If you’re not already tracking this, it’s not hard to get started. Tools like Go High Level can track your leads and calculate CAC, and LTV can often be estimated by looking at your average sales data and retention rates.
Trust me, once you know these numbers, you’ll feel so much more in control of your business growth. Let us know if you want me to break it down further or help set something up for you!
Thank you,
— Esteban Nina
👑 EsteCam Marketing Agency
