I’ve recently come across the relationship between CAC (customer acquisition cost) and LTV (lifetime value).
This relationship is broadly used in thr startups and investments world. The CAC starts high and ends low. LTV starts low and ends high.
The crossover in time is magic: When LTV outgrows CAC. A 3:1 ratio in a mature (3-10Y) company would mean a great business model worth investing in. <3:1 is bad. >3:1 probably inefficient.
Netflix is like this. Amazon. Airbnb. Booking. Walmart. Uber. Nike. Texaco. Dopper. Basic Fit. IKEA. Piaggio. Binance. UFC. Some are more focused on first transaction. Some on recurring. And it’s the recurring (LTV) companies make the real profit with.
There’s something to learn here for every business owner, since this applies to every company. From freelancer to global multinational and everything in between.