The 2 most important business metrics

These are the 2 most important business metric that every founder must know about.

It was only when I learned to control these 2 metrics that my businesses 10X’d.

Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is a critical metric that quantifies the average cost of acquiring a new customer. It’s calculated by dividing the total sales and marketing expenses by the number of new customers acquired during a specific period.

Formula:

For example, if a business spends $50,000 on marketing in a given month and acquires 1,000 new customers, the CAC would be:

This means the company is spending $50 to acquire each new customer.

Importance:

Profitability and Efficiency: The CAC helps businesses understand how much they’re spending to grow their customer base. If CAC is too high relative to the revenue a customer brings in, it signals inefficiencies.

Break-Even Point: Knowing your CAC is crucial to understanding when a customer will start to generate profit. If you’re spending $50 to acquire a customer, you need to ensure that the revenue they generate (via purchases, referrals, etc.) exceeds that cost in the long term.

Industry Data:

According to a 2019 report by ProfitWell, the average CAC across various industries ranges from $200 to $800, with tech startups often seeing higher numbers due to upfront marketing investments.

Customer Lifetime Value (LTV)

Lifetime Value (LTV) measures the total revenue a business expects to generate from a customer over the entire duration of their relationship. It’s calculated by multiplying the average revenue per user (ARPU) by the average customer lifespan.

Formula:

LTV = ARPU x Customer Lifespan

For instance, if the average customer spends $100 per month and stays with the business for 24 months, the LTV would be:

LTV = $100 x 24 = $2400

This means the business can expect to generate $2,400 in revenue from that customer over their lifetime.

Importance:

Strategic Decision-Making: LTV is critical for businesses to determine how much they can afford to spend on customer acquisition while remaining profitable.

Customer Retention: A higher LTV typically reflects strong customer retention, loyalty, and satisfaction. It helps businesses focus not only on acquiring new customers but also on maximizing the value from existing ones.

Industry Data:

According to Gartner, businesses with higher LTV-to-CAC ratios tend to have stronger customer retention and more sustainable growth.

HubSpot reported that companies with high customer retention rates can increase their LTV by 25% to 95% in 12 months.

The Relationship Between CAC and LTV

The real power comes when you compare CAC and LTV. The ideal scenario is when the LTV is significantly higher than the CAC.

A common rule of thumb is that LTV should be at least three times higher than CAC. If the ratio is below 1:1, it indicates that a company is losing money on customer acquisition.

Example:

If your CAC is $50, but the LTV of each customer is $150, then for every dollar spent on acquiring a customer, you generate three times that in revenue, which is a healthy and scalable model.

Conversely, if the CAC is $500 and the LTV is $450, the company is spending more to acquire customers than it earns from them—this is unsustainable in the long term.

By carefully monitoring Customer Acquisition Cost (CAC) and Lifetime Value (LTV), businesses can ensure they’re operating efficiently, retaining customers, and scaling sustainably.

Striking the right balance between these two metrics is essential for long-term profitability, growth, and customer-centric success.

But here’s the thing: understanding and controlling these metrics only makes sense when you have a viable business.

If you want to build and launch your first app business quickly without burning through your budget—or your time—you need to make decisions that maximize your efficiency and speed.

You see, I didn’t rely on complex coding or months of development to bring my business ideas to life. Instead, I built and launched two fully functional apps in just two months—without writing a single line of code – using my personal “Launch 28” framework.

If you’re ready to see how you can accelerate your growth and launch your ideas just as fast—without the need for developers or big upfront investments—I’ve got something special to show you.👇🏼

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Pramod George

Pramod George

Founder, Author, and Teacher | Obsessed about identifying high leverage opportunities for business growth | Futurist

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