Good to know: what is important for long term growth of your startup

There is one important principle in marketing that seems obvious, but is often neglected. It is that in the long run lifetime value of your customer should be higher that the costs of attracting and holding this customer – the client acquisition cost.

Most often this parity cannot be achieved with the first 10, 100, or 1000 customers, depending on the type of your industry. There you need to get first clients no matter what to test your product, get feedback, etc. But at later stages to generate profits you will need that your revenue covers acquisition costs.

This means that from the very beginning you should understand if there is at all a channel / tool that will allow you to attract clients at the price that is lower than LTV?

An example. You can easily spend $100K to give out new iPhones to clients for signing up to your amazing service which costs $9/month, and requesting them to stay signed for 24 months. That’s $1000 per client that will bring you $216 of revenue.

This is obviously not sustainable as many clients will unsubscribe as soon as their 24 month contract is over.

Obviously, this is an exaggerated example, just to show the idea. More practical example could be relying on Google search ads with a product with LTV of $50 and finding out in the end that average cost per client in your industry is $150.

Understanding early what level of acquisition cost you can expect will help you in figuring out if this business model could be profitable at all. Maybe you need to adjust the business model, or find different acquisition channels, or maybe even create new type of acquisition channel.