The most important metric for any entrepreneur / scaling a business quickly

[Dave_NumberOne]

Real talk. I keep it simple and straight. The most fundamentally important metric for any business growth is this one. Other things matter too but if you dont get this right, you just cant make a real business out of it.

LTV:CAC ratio

LTV= lifetime gross profit you make with a customer
CAC= your cost of acquisition for a customer

the ratio should be at least higher than 3

example for my business (which went from 0 to 250,000k per month in lass than 3 years with no investment/loan, just 2,500 usd in the beginning)

10,000 LTV : 1,000 CAC = 10

---> means everytime i spend an average of 1,000 USD I get 10,000 USD gross profit out of it. If this fundamental metric is 3< you might have a business that can be scaled quickly with paid advertisement. If it is below 3 and cannot be increased somehow, you would probably be better off doing something else. Since you often dont know in the beginning you should be sure that its at least bigger than 5, since real world results tend to be worse than your imagination in the beginning

 

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[Bing]

I like the attempt to keep the numbers simple. As a numbers guy myself, I'm always trying to reduce the algorithm from -b±√(b²-4ac))/(2a) to something like "if a+b>c = success".

I think you CAN reduce it to "cost < profit = success" but obviously that's too simple. After all, if my time is worth $30/hr and I spent 3 hours on something that net me less than $90 in profit, it's not REALLY worth it. So maybe we need to give a little more detail to our formula.

How about: "expenses + time < profit = success"? Now we're considering our cost value! But what about taxes? Does our "profit" account for that? Either way, we should probably reflect it in our algorithm like so: "expenses +(hours * salary) < (profit - taxes) = success".

Hopefully you see how this goes on and on and on. Again, I'm not saying I don't love the attempt to simplify, but that's where abbreviations like EBITA (an acronym for Earnings Before Interest Tax and Amortization) come from, since that's basically a formula in itself.

Then there's MJ's point about SCALE -- specifically the E for entry. If you can reduce your entire company to a single formula, you're probably not really providing a whole lot of value. (Not saying that's what you're doing here, but it's why whenever someone promises you a "formula to wealth" or "the algorithm to success" there's always MORE missing variables than there is numbers, unless they're selling you lies, of course.) Those people who are looking for a "no thought formula for success" are destined to fail, solely because those who are willing to work for it will out-perform them.

Again, I love this attempt to simplify. I would be lying if I didn't say I try doing it myself to sell my slowlane friends on the Fastlane, but ultimately I don't think the universal shortcut exists, because as soon as someone illustrates a gap, it becomes a race to quality. And ultimately, nothing will beat hard-work until someone figure out how to reduce the quadratic equation (my complicated formula at the beginning).

 

[MJ DeMarco]

Essentially you are describing a rate of return, and trying to determine if it has the potential for asymmetry.

Spend $10, Earn $100 ... that's a 1000% return, and asymmetric. It's how people get rich.

 

[Johnny boy]

LTV is around a grand as we continue into the future since we have customers from years ago still paying us.
CAC is $100 or less
10x+

I think with some better ads we'll be able to lower CAC at current prices to like $60. Would let us increase our prices, would bring CAC back up to $100 or so, but LTV would be 30% higher.

I think you should keep an open mind because if you are naturally conservative in your estimates, you might shoot down good ideas. Let the market show you what your ratio is, because each year I always have skepticism if we'll hit our revenue goal of doubling each year and we always do it. Things have usually ended up better than expected each year for us. So don't get in your own way, test it out and if it flops, kill it, if it takes off, amplify it.

 

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[Albert KOUADJA]

Real talk. I keep it simple and straight. The most fundamentally important metric for any business growth is this one. Other things matter too but if you dont get this right, you just cant make a real business out of it.

LTV:CAC ratio

LTV= lifetime gross profit you make with a customer
CAC= your cost of acquisition for a customer

the ratio should be at least higher than 3

example for my business (which went from 0 to 250,000k per month in lass than 3 years with no investment/loan, just 2,500 usd in the beginning)

10,000 LTV : 1,000 CAC = 10

---> means everytime i spend an average of 1,000 USD I get 10,000 USD gross profit out of it. If this fundamental metric is 3< you might have a business that can be scaled quickly with paid advertisement. If it is below 3 and cannot be increased somehow, you would probably be better off doing something else. Since you often dont know in the beginning you should be sure that its at least bigger than 5, since real world results tend to be worse than your imagination in the beginning

I haven't run a fastlane business yet or anything like that, but I know from the experiences of successful entrepreneurs that the world is telling you where to go. your first ideas that you have while starting your business are often far from satisfied most of the time. So it's up to you to pivot and adapt the market with the world.

 

[Parks]

LTV is around a grand as we continue into the future since we have customers from years ago still paying us.
CAC is $100 or less
10x+

I think with some better ads we'll be able to lower CAC at current prices to like $60. Would let us increase our prices, would bring CAC back up to $100 or so, but LTV would be 30% higher.

I think you should keep an open mind because if you are naturally conservative in your estimates, you might shoot down good ideas. Let the market show you what your ratio is, because each year I always have skepticism if we'll hit our revenue goal of doubling each year and we always do it. Things have usually ended up better than expected each year for us. So don't get in your own way, test it out and if it flops, kill it, if it takes off, amplify it.

I feel like $60 CAC is still really high? Do you only do Google ads for marketing? At that rate it almost seems like paying one of your employees to knock doors at $15 an hour would be more effective. That or fliers?

 

[Johnny boy]

I feel like $60 CAC is still really high? Do you only do Google ads for marketing? At that rate it almost seems like paying one of your employees to knock doors at $15 an hour would be more effective. That or fliers?

If you can get our CAC from any one single scalable advertising/marketing channel below $50 consistantly I will pay you many thousands of dollars and we will pop bottles of Dom and party all night because that would help make me a millionaire twice as fast.

 

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[Move the chains]

I feel like $60 CAC is still really high? Do you only do Google ads for marketing? At that rate it almost seems like paying one of your employees to knock doors at $15 an hour would be more effective. That or fliers?

This probably depends on the niche. I see personal injury attorney cost per clicks upwards of $250 each in some of the areas I do business in. That's just for a click, no guarantee they even reach out or become a client.