Strategy

Pushing LTV1

300 %2 higher than

CAC3 is your ^#1

growth strategy.

¹ Customer Lifetime Value (LTV) is how much your average customer pays you over time

³ Customer Acquisition Cost (CAC) is total costs to gain an average customer

² 300% or 3:1 is the ideal ratio of LTV/CAC that gives you enough margin to scale

Customer

Lifetime

Value

LTV

Customer Lifetime Value

Customer lifetime value LTV goes up when you keep customers coming back. Branding makes this possible. Without a uniquely differentiated value proposition wrapped in an enduring brand story, you're just a fungible commodity–easily replaced.

Logic

LTV

Turning customers into subscribers can raise customer lifetime value (LTV1) to 3x CAC2 (3:1)

¹ LTV = Annual revenue per customer * time retained

Branding can motivate customers to refer more customers lowering customer acquisition cost (CAC2) to 0.33 LTV1 (3:1)

² CAC = All annual expenses / total number of customers

CAC

Process

“Design-driven companies outperform S&P by 228% over 10 years.” DMI

1. Growth

If you build a brand in a market that is growing fast it raises your potential LTV. If you lack differentiation your CAC will soar because growth markets are often bloody red oceans filled with competitors all fighting for the same customers.

2. Pricing

When you price the product to sell the brand promise, LTV goes up. When customers are so proud of their purchase they tell other people, CAC goes down. Word-of-mouth marketing happens when people feel the value of the product was worth or exceeded what they paid for it.

3. Positioning

When you intrigue potential buyers with a story where they are the hero and your brand gives them superpowers, LTV goes up. Sometimes it goes up so much it gives you more to spend on CAC.

4. Messaging

When you consistently repeat one important idea that makes people focus on the outcome of using your product, (not your product itself) your CAC goes down. Not having a consistent brand message makes CAC expensive.

5. Personality

Make sure your brand voice and visuals has a consistent personality. When you discover the most efficient channels to find buyers, your CAC goes down and your LTV goes up.

6. Experience

You can't build a brand without a compelling online experience that converts. When your website creates perceived value, LTV goes up. When your product delivers on your brand promise, CAC goes down.

7. Audience

The best reason to do brand advertising: you get to rent the attention of someone else's audience while you build your own. With a small budget, you can know which value propositions resonate with potential audiences so you can validate your LTV/CAC intuitions with real data.

8. Metrics

The metrics you measure should start with demand and go beyond the buy button. With data from your full funnel, you can get your LTV/CAC to a 3:1 ratio (by channel) so you know your business can profitably scale.

"Erik has a velocitizing effect on people."

Matthew

Lehman

Head of Payments Security, Amazon