Startup Funding Espresso – The Value of LTV:CAC

The Value of LTV:CAC Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing. The Lifetime Value to Cost of Customer Acquisition ratio is called LTV:CAC and is a useful ratio in determining the health of a startup. To calculate the Lifetime value, take the monthly revenue and divide by the churn rate. To calculate the Cost of Customer Acquisition, take the number of new customers for a month and divide by the cost of sales and marketing for that month. Compare the LTV to CAC to determine the ratio. The ratio must be at least 3:1 to prove the business viable. The higher the LTV:CAC, the higher the gross margins and profit margins. This provides a greater reinvestment rate into the business. Investors place a higher valuation on startups with higher LTV:CAC ratios. SaaS businesses often have a 5:1 LTV:CAC, which comes from the recurring revenue. SaaS businesses at the Series A level often have a 7:1 LTV:CAC. The higher the multiple, the higher the growth rate for the company. Check the LTV:CAC rate of a startup to determine its growth prospects. Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding. Let's go startup something today. _________________________________________________________ For more episodes from Investor Connect, please visit the site at: http://investorconnect.org Check out our other podcasts here: https://investorconnect.org/ For Investors check out: https://tencapital.group/investor-landing/ For Startups check out: https://tencapital.group/company-landing/ For eGuides check out: https://tencapital.group/education/ For upcoming Events, check out https://tencapital.group/events/ For Feedback please contact [email protected] Please follow, share, and leave a review. Music courtesy of Bensound.