CAC, nCAC or LTV: Which one should you use?

[00:00:00] when we're comparing enac to LTV amount it purely comes down to the client and how long they're willing to wait to get their money back just so I can get us to refocus on metrics so there's a bunch of business metrics that we want to look at when we're trying to identify the stage of businesses in how viable this business is how much skillability because you're always going to hit a point of diminishing return with whatever business to come at right so you got to be able to understand your metrics know where to pull and where to push right so starting off we have our very first one besides CAC which is basically C for acquiring a customer and then end CAC which is c for acquiring a new customer C for acquiring so which one is always going to be high the cost requiring a customer or new customer not new new one new one yep so why is that because coal traffic is more expensive in general yeah yeah that and because if we have

[00:01:04] 100 customers and 40 of them are new we spent let's just say $100 I don't know $1,000 to get those 40 new customers it cost us what is it $100 for new customer and then 200 for roughly 200 for the new customer so it's just the ratio split right so if you have a good ratio of new customers in comparison to return customers it's going to cost you less but if you have more returned customers than new customers it's going to cost you more right then you have your me and your new customer M it's the same concept of media efficiency ratio which is essentially someone tell me what me is I want to go back to the C for one second go ahead do you do you find anyone actually uses just CAC and not enac like do you find I find people using CAC when they should be using enac and I I just I wonder if we should sit there for a second because I think these get confused so there's different scenarios where I would use them um CAC

[00:02:02] is just an overall to acquire a customer which would be new and return I personally like using andac more because all my numbers are based off of when I'm directly correlating a new customer to their 1 three six and 9 Monon LTV numbers right so if I can acquire a new customer let's just say I don't know um what is pretty much saying oh but um the reason I look at enat more because I can look at it in terms of a 136 and a 12 n month whatever LTB amount so if I'm running see you're making me get ahead of myself Kobe um I'm gonna stop I'll stop this is good though we're having good conversation I don't want to kill but let's keep keep doing this but now that we're on the topic of enac and LTV the reason enak is a good metric in comparison to LTV you can lose money trying to get that first customer in through the door so let's say you have a subscription model that cost you someone give me a number $50 a month right that

[00:03:03] cost $50 and to get that customer um it costs you $150 right to get that a new customer in it cost you $150 right when we're comparing enac to LTV amount it purely comes down to the client and how long they're willing to wait to get their money back if they have let's just say a nine month their their turn rate for in terms of a subscription model and they want to be profitable month three you can spend up to 150 to get that customer new customer in the door and you'll be fine right and if they're okay with let's say they want the to be profitable after six months and maintain the three month profit right which is 50 time 6 300 so you can spend up to 300 to get that new customer in through that door right to be profitable so that's how you want to look at LTS at the same time you can look at other businesses as well so if we're taking another business into account for this we'll take one that

[00:03:59] requires people to buy again and then we'll take another one that doesn't so someone something that people will buy over and over again let's just take supplements and skinc Care Now someone give me something else that someone's not going to buy as often um P's old client which one do you know so I know for like skincare and supplements people buy their return rates are like 15 16% every month where people come back and solid amounts so the first month LTV might be 100 the second month like three months in it'll be 150 six months in it'll be like 180 and by like month 12 LTV would be like $200 right and then what about sound equipments Andrew what's your experence what's the LTV on that for like an estimate 36 I mean l LTV doesn't really exist it's just straight aov because it's like it's like a one time thing fair enough fair enough so for in a business like uh a supplement one where you're let's say your 12 month lpv

[00:05:08] is $200 and they're okay spending $100 for a new customer you can spend $100 for a new customer even if their aov is like 30 bucks doesn't matter right because they're going to be worth $200 to them by the end of the year obviously caveat is that you don't go around and just resp spending money on them again and remarketing the out of someone already bought that you know it's going to buy again right so knowing your 13 69 and 12 month LTV is extremely important in terms of just metrics because then you know how much money or how valuable a new customer is to that there's a lot of easy ways to go into looking at these or how many new customers you got or even if you want to calculate them yourself so the way I end up looking at new customers is easily if you want to look on a month on month Shopify has this customer cohort analysis where this number here is essentially the amount of new customers

[00:06:08] for that month right and these numbers here identify the return rate of those customers so your first order the 100% first order in month zero 11.13% or 11 I did I say 13 11.3% people came back and buy again a month after 8.6 then 4.4 right so now let's say if I want to look at my 12- month LTV this was 12 months ago right so if I'm looking at my 12 month NTV for this client right May 2023 was 12 months ago and I have all period selected in my whole Revenue gross revenue there's are about three million in uh what do you call it spend and 10,000 299 new customers and 16,000 orders so these 10,000 customers or 10,300 customers placed around 177,000 orders right with an average order value is 152 so the amount spent the LTV is it should add up to 268 if I divide 2938 8 90 divid by yeah so roughly given if because there's always a little mismatch because of returned and stuff this is your L 12mth LTV for this business right now

[00:07:29] based on off these numbers right you spent 3 million or sorry you generated 3 million Revenue you had 10,300 new customers that's the average a customer spent $268 now let's just say when we're talking about endcaps right it's a skincare brand the profit margins are around 80% here give or take 80 to 90% is where they're usually at eight if I do 80% that means they made $24 in gross profit which is the Met next metric we're looking at after C cost of goods $ that you have to play with across 12 months require one new customer right given that they're satisfied with that right so if depending on how much money or how much how profitable the client makes let's say they want to be profitable at 150 and they're okay with them coming back at by month 12 and being profitable by month 12 or whatever it would be right you can spend up to $150 to $200 and still make them money here right because over 12 month to be

[00:08:30] profitable go ahead Andrew um is the is the amount spent per customer for that whole period that you're looking at over 12 months yeah so now if I just go to the first order place by people right it's uh this amount and the amount spent per 189 just relatively close that's like the LTV for these guys for the first it's basically aov for the first order right then we get into first month and then this just breaks down the per month sale right and now let's say if I want to go into the six month or three month LTV let's go back three months like if this says April April's gone February so we'll go February 205 is there thre month LTV one two three 216 is there six month one two3 262 is their nin month and then one 123 Whatever May 2 68 is their 12 month did everybody follow that that's just to do some really really quick math across their whole thing it's not based off a collection just across their whole the

[00:09:38] whole business so you can you can you can you can realistically just kind of ballpark yeah LTV for certain periods of time just with that amount spent per customer yep okay yep yep everybody F with that right go ahead Jason okay so you're really heavily first of all accuracy and Shopify you're heavily dependent on averages right and what the client is going to tell you their comfort level is and how many months I mean because as as you go through the 12 month their their returning customer rate especially if you're going after new traffic it keeps declining you know you're at 11 you're at 10 you're at seven you are going to lose if you're gonna pay whatever the cost is let's say it's 200 in order to be profitable on four months at month four you're entirely dependent on having enough profit from that 10 or s% who actually have a $222 12 Monon LTV but what about all the others that you lose that don't repeat

[00:10:52] so this number is with respect to all the things so it's basically the if I look at it hold on oh from May so we had 10,300 customers right yeah these 10,300 customers generated this number here right so this number is basically an average of this and this so divide the two I think over 12 months over 12 months right so this is an LTV across the 12 months essentially yeah so you're heavily dependent on the averages and you're not worried about the fact you say heavily dependent on the average is what do you mean you're not worried about the fact that every C customer is going to come back and buy from there's no chance yeah right aren't you worried about like if that percentage of one time only customers is going to you know put you at a loss at a certain point when it's not a high enough repeat customer that you know comes back in orders four times over the next 12 months based off these averages

[00:11:47] they should because if you're looking at a long enough duration I'm just saying I guess what I'm just saying is is this average okay amount spent per customer that's the 10,000 is over the course of a year year and so it's 10 no this 10,000 this 10,000 is the amount of new customers that came in in May oh yeah it's not over their year right it's okay okay so the 10 299 times 268 is the 2.9 monthly average or monthly sales number yes yeah this is the amount of new customers that we got in the month of May 2023 and they spent in the same month 268 and that equals to 2938 million no so these 10,300 customers that we got in May across a 12mth period spent $3 million oh across the 12 month okay wow okay does that make sense yeah this is like if you have no apps and you're looking at Shopify obviously there's better apps to give you better numbers but I'm missing it off of assuming everyone has limited data I

[00:12:56] need quick numbers right yeah I think I I think going on the least information that we have is better because most most situations this is really all we and a half yeah and then if you want to break it down um actually I won't go that's to nitty-gritty um that's for another day but yeah you can like North beam does some stuff in LTV as well yeah we'll get into that later okay then I won't say nothing and just sorry and just to touch on Josh's Point did he just make that he just made and where he said it's it's about decision making based off data I mean the it doesn't you don't have to have all the numbers like perfectly mapped out it's just as long as everything makes sense mathematically and it's you're in a relatively good place you can make the right decisions in terms of what what to optimize what to not optimize yep agreed typically this is how everyone measures clients wise um you know CPA roas like

[00:14:15] what am I getting cost per conversion blah blah blah and what does the return on that spend um these are the metrics that we should be counting um this is something that all of these will