Quote Info

A great way to understand any business model is to answer the following simple question:

Can I make more profit from my customers than it costs me to acquire them?

This is effectively a study of the unit economics of each customer. To answer the question, we need two metrics:

  • LTV – the Lifetime Value of a typical customer
  • CAC – the Cost to Acquire a typical Customer

(How to calculate LTV and CAC)

Entrepreneurs are usually overoptimistic about how much it costs to acquire a customer. This probably comes from a belief that customers will be so excited about what they have built, that they will beat a path to their doors to buy the product. The reality is often very different!


ForEntrepreneurs.com