Growth Variables
What is each customer worth?
What profit margin do products have?
What does it cost to acquire a new customer?
How many new customers are being acquired?
Corresponding Metrics
LTV (Lifetime Value) - The total amount a customer is expected to spend on average over their lifetime.
Formula: Average Order Value x Order Frequency
Example: $150
Gross Margin - How much profit is left over after all product and fulfillment costs. In this use case we are referring to it as a percentage.
Formula: (Revenue - COGS) x (100/Revenue)
Example: “65%”
CAC (Customer Acquisition Cost) - How much marketing spend does it take to acquire a new customer.
Formula: Total Marketing Spend / New Customers
Example: “$50”
New Customers - How many new people have bought within a specified time period.
Example: “1000”
Using These Metrics for Success
By using following equation, we can understand how these variables interact and how to effectively drive growth.
My primary focus is to manipulate this equation to drive the most Revenue and Contribution Margin (profit before fixed costs) as possible.
Explore this equation with this Google Sheet
Click image to make copy
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