The Most Important Metric in Business
"He who can spend the most to acquire a customer, wins."
This famous quote explains why LTV (Lifetime Value) is superior to ROAS (Return on Ad Spend).
If you only look at the first purchase (ROAS), you might think a customer is worth $50. But if that customer buys 4 times a year for 3 years, they are actually worth $600.
Knowing your LTV allows you to bid higher, acquire more customers, and dominate your market while your competitors are scared to spend money.
The LTV:CAC Ratio
Calculating LTV is only half the battle. You need to know how much of that value you are willing to spend to get the customer. This is your Target CAC.
Danger Zone.
You are spending all your profit just to get the customer. Unless you are venture-backed and purely chasing growth, this is unsustainable.
Healthy Growth (Standard).
You spend $1 to make $3. This covers overheads and leaves room for net profit. This is the goal for most businesses.
Cash Cow (Conservative).
You are very profitable, but you might be leaving growth on the table. You could probably afford to spend more to grow faster.