LTV, CAC & Payback
Grow when lifetime value exceeds acquisition cost with fast payback.
Explanation
These three metrics determine whether your business model is sustainable. Lifetime Value is how much revenue a customer generates over their entire relationship with you. Customer Acquisition Cost is how much you spend to get that customer. Payback Period is how long it takes to recover your acquisition investment. If you spend more to acquire customers than they'll ever pay you, you'll go out of business no matter how fast you grow.
Real-World Example
Company A: LTV $3000, CAC $1000, Payback 4 months. Can raise funds, grow fast. Company B: LTV $1000, CAC $900, Payback 18 months. Looks profitable but will run out of cash. The difference: Payback period.
How to Apply
Calculate: LTV = ARPU × Gross Margin × Customer Lifetime. CAC = Total Sales & Marketing / New Customers. Payback = CAC / (ARPU × Gross Margin). Improve: Increase prices, reduce churn, improve onboarding (lowers CAC), focus on better-fit customers.