It’s interesting to consider how business model design can transform CAC:LTV dynamics.
When first learning about B2B growth and customer acquisition, it's easy to underestimate how much time, effort, and energy goes into creating sufficient trust to make a "sale".
Once trust is established, and assuming that a business delivers (or ideally exceeds!) upon the expectations set in any sales process, it can be easier to sell a new offering to an existing customer, than going out to the cold market, and finding a new customer altogether.
Incidentally, if repeat sales don’t happen, then perhaps that’s a signal that the product or service isn’t delivering sufficient value in the first place.
A SIMPLE EXAMPLE
Imagine a business that sources deals for private equity firms. The offer is straightforward: identify businesses that may be looking to sell, gauge interest, and book meetings.
Perhaps the fee for this service is $10,000 per month, and clients stay for 12 months.
-> LTV = $120,000
Now imagine that acquiring this customer relationship costs $30,000 - in conferences, meetings, travel, and sales calls.
-> LTV:CAC = 120,000 / 30,000 = 4
A DECISION POINT
That’s a healthy ratio, but it's interesting to consider the impact that business model design can have on the same ratio.
Instead of focusing only on acquiring more customers for the same core service, the business could layer on complementary offerings:
Due diligence support - evaluate whether a target company is worth acquiring
Value creation planning - design a roadmap for post-acquisition growth
Recruitment support - fill key roles to execute the value creation plan
With each additional service sold into the same account, LTV increases - without necessarily increasing CAC.
The strategic question becomes:
Does one acquire more customers for a single offering?
Or is it better to identify additional problems to solve for existing customers?
THE TAKEAWAY
Many businesses have this choice. Once a business has solved one problem for a customer, it’s interesting to ask the question:
“What’s the next problem they’ll need solved?”
Answering that question well can be the difference between a business with a good CAC:LTV ratio, and one with an exceptional one.
good insight like always - agree CAC LTV and various other metrics need to be read into carefully and not at a superficial level alone.