CAC / LTV Ratio:
It measures the ability of companies to efficiently acquire customers and maximize the return of their sales and marketing efforts. It also informs you about how much money you should spend on customer acquisition.
- CAC: All costs that the startup had to acquire a customer. From lead to final contract
- Customer Lifetime Value shows the ability to monetize those customers, in other words, how much profit a customer will bring during his entire relationship with the company.
- As long as the CLV is greater than the CAC, the company is efficiently acquiring customers.
Magic Number
- An excellent metric for showing the effectiveness of previous quarter Sales and Marketing spend on MRR growth. It helps you understand if the money spent yesterday and today on marketing and sales leads to the targeted recurring revenues.
- A magic number of 1.0 also implies that you paid back your customer acquisition costs in a one-year timeframe.
- A number above 1 shows that revenue growth is greater than the cost of sales and marketing.
Calculation: take the net growth of revenue over two quarters, times it by 4, and divided by total spend on sales and marketing in quarter one.
