CAC to LTV Ratio | Palomar Advisors

Customer Acquisition Cost (CAC) to Lifetime Value (LTV) Ratio

Practice Area Overview

The Challenge

Do you understand your full-loaded customer acquisition costs (CAC)?
How well have you defined customer lifetime value (LTV)?
Do you know how your LTV/CAC Ratio compares to industry?
Is this a critical metric discussed at all levels from the Board to the front-lines?

As businesses rely more and more on digital channels to acquire customers, it has become easier and more critical to fully understand your fully-loaded costs of acquiring a new customer. Do you include all aspects of digital campaigns including creative, offers, sales comp & travel, testing platforms, and more? Do you measure CAC at the campaign or even major customer level? It is vital that you understand your acquisition costs to know if and how you can scale growth.

While some high-growth companies understand the CAC basics, many fail to measure multi-year lifetime value to understand the revenue and profit contribution from new customers. The assumptions in the equation can be a challenge. How many years do you include in LTV? Do you track product cross-sell and add it to your LTV calculation? Do you measure on a cohort, product, campaign, or major client basis?

Simply put, accurate and sustainable measurement of CAC and LTV are critical to the financial success of a high-growth business. And more importantly understanding your current ratio of LTV/CAC and how it compared to best in-class companies is vital to your future plans for success.

The Benefit

By blending best practices with analytical rigor, organizations establish accurate and repeatable of their customer acquisition costs and the lifetime value of their customers.

We will help review and or develop the metrics to ensure they have organizational buy-in as a key success metric. Clients will also receive a detailed set of recommendations on how to measure LTV/CAC, feedback on the current ratio, and a specific plan to improve the ratio to meet or exceed industry best-in-class standards.

Engagement Overview

Discovery

Step 1

Palomar will spend time learning about the business, the relevant leaders on the team, and any products related to the engagement.

We will request material to review in advance to help us gain necessary understanding of the business.

Then we will conduct interviews either in-person or virtually to meet with relevant team members and discuss the topics related to the engagement.

Recommended Action

Step 2

Palomar will provide detailed feedback based on their extensive experience and as a result of the Discovery Phase. the feedback will include specific areas of strength as well as opportunities for improvement. Where possible, we will also include comparisons to the industry or other best-in-class companies as a benchmark.

In addition to the feedback, Palomar will provide a detailed set of recommended actions to address the opportunities identified during the engagement. The action plan will be prioritized by potential impact to the business as well as the timeliness of the recommended action.

The Findings and Recommendations Report will be provided in a presentation format. We can deliver the presentation to the necessary team through an in-person or virtual meeting where we can share the information and field any relevant questions.

Implementation

Step 3 (optional)

Palomar will work with the key stakeholders to align on prioritized action steps resulting from the Findings & Recommendation Report. We will then develop a detailed Implementation Plan through joint ownership. Once the plan is finalized it will include commitments, ownership, and timelines.

Then we will partner with key stakeholders to implement action steps and install appropriate success metrics.

Palomar Advisors can facilitate through different roles in the Implementation Process:

PA develops Implementation Plan in collaboration with client Co-Owner.
PA remains as an active advisor during the implementation process.
PA is fully responsible for managing the implementation process with key stakeholders.