“Would you rather” for SaaS nerds

brendan-church-182747
In an ideal recurring revenue company, you’d have enormous LTV:CAC because sales and marketing costs would be small relative to ACV and there would be no churn. But if you had to prioritize one, would you rather have a long customer lifetime, or a quick payback of acquisition costs?

LTV:CAC is effectively a measure of how much a customer is worth (lifetime value) relative to how much they cost to get (acquisition cost). With a little rearranging, it can be restated in terms of lifetime and payback period.

This tradeoff can be visualized as a matrix of different lifetime/payback combinations that achieve given LTV:CAC values. Because it’s more familiar, I’ve restated lifetime in terms of its inverse, churn.

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