Understanding LTV:CAC

For eCommerce, it’s important to get past the idea of just making the immediate sale. As marketers we want to think about the entire lifetime value of a customer (LTV) compared to the customer acqusition cost (CAC). Although it’s ideal to have the lowest CAC as possible, the long term benefits of a higher LTV:CAC outweigh the small amount of money you would save early on. By initially investing more in the customer, you are setting your company up for loyal, returning buyers, rather than one time customers.

Let’s look at Starbucks for example. Across 5 customers, the average spend per visit was $5.90 - seems pretty great for a coffee shop. But consider that the average customer lifespan for Starbucks is 20 years. Looking at how often a customer buys from Starbucks, that’s an estimate potential of about $14,099! Thus, instead of acquiring more customers to spend $5.90 just one time, Starbucks focuses significant marketing budget on gaining loyal customers who will stick around and keep purchasing to surpass their acquisition costs and generate much more lifetime revenue.

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