Curious to hear how important LTV:CAC ratio is to all of you, also let me know in which stage you are in.
3 Likes
Since we haven’t done much ad-spend.
It’s of low importance ATM, but will become more important as we expand into that area. (in next 2 quarters)
We have it roughly calculated, but it’s not going to make or break us.
Currently all our leads come from inbound content marketing->inside sales team / free trials
3 Likes
For us as well, during the early stages, it was definitely not that crucial a metric, and a good proxy for us was to measure the CAC payback period. Unlike LTV:CAC, which has a certain return factored into it, the payback period is entirely about understanding the number of months it takes to recover the costs spent.
A good rule of thumb is that you’d want to ensure that the recovery is not completely off by 6-12 months, although, if the NRR is higher than 130%, companies can aim for 18 to 24 months of payback.
Today, the LTV:CAC ratio is an incredibly important metric to measure and improve sales efficiency. We look at this on a rolling 3-month basis. We compare the CAC for the previous quarter to the LTV of the current quarter. Because the return on the spend for the previous quarter is expected to materialize only in the current quarter. A good industry benchmark is 3.
Now, to further understand what’s influencing this ratio in terms of actuals, we break this down further by our target customer categories. A category-specific LTV:CAC helps us make sense of what’s driving the numbers and to decide where exactly we should double down on.
If a given category has had a consistently low ratio, there’s a reason to dig in and revisit our spend. While we may not want to always act on some of these conclusions immediately, it’s useful to notice the trends over time to draw better insights and aid decision-making. Hope this helps.
2 Likes