In this article, you will learn key metrics to track for your startup and how to measure success.
As a start-up founder, it’s essential to measure the performance of your business using key metrics that give you meaningful insight into customer acquisition and retention. Understanding Customer Acquisition Cost (CAC), Lifetime Value (LTV), and Churn rate provides powerful information about how successful – or unsuccessful -your efforts are when growing your start-up.
In this blog post, we’ll break down each metric and explain what they mean for your business. Let’s get to it!
CAC, or customer acquisition costs, is the cost associated with your time and effort to get someone to use your product.
This metric is important because founders must understand how much capital is needed to achieve the user metrics you want.
For example, if you want to reach 1,000 new customers and know it costs $100 to convert one person. Then you know it will take $100,000 to convert 1,000 new customers.
CAC can vary per company and industry, so there’s no correct number.
LTV, or lifetime value, is the total value you can derive from one customer using your product.
Often, this value is represented as revenue, subscription value, or potential revenue. But it can also be represented as advertising revenue, which is valuable for freemium models.
Overall, your primary goal is to drive CAC down and LTV up.
Churn refers to customer loss. This is the period of time customers will use your product, after which they will stop using it.
Understanding your customer churn can help you project and set growth goals.
For example, if your start-up experiences 10% churn each month. You know you’ll have to acquire 10%+ new customers to break even or grow.
And because you understand your CAC and LTV, you’ll then be able to calculate the cost of replacing churned customers and how long they’ll provide financial value to your business.
Concerning LTV, your goal is to decrease churn while raising LTV.
Finally, the last term you’ll hear is “levers.” For example, “What levers can you pull to change your trajectory?”
As a founder, CAC, LTV, and churn are all levers you can change about your business to change trajectory, lower costs, or something else.
With this in mind, remember that whatever levers you pull, you’re always trying to lower CAC, increase LTV, and decrease churn.
If you currently have or are inspired to create a minimum viable product (MVP), consider applying to the free Founder University 12-week course. We invest $25,000 in the top graduates, helping founders like you to continue growing!
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