👋 Hi, it’s CJ Gustafson and welcome to Mostly Metrics, my weekly newsletter where I unpack how the world’s best CFOs and business experts use metrics to make better decisions.
LTV to CAC and Nickelback are both:
Overplayed
Unrealistic
Prone to error
Unchanging with the times
General, and devoid of context
Canadian
Today I’ll explain why LTV to CAC is flawed, yet a consistent recipient of misplaced love.
TL;DR:
It’s too compound of a metric for decision making purposes
It’s theoretical, and often unrealistic
People make some very common mistakes
Forgetting to Gross Margin Adjust your LTV
Using the wrong churn rate
Refusing to segment
The difficulty of landing a customer changes over time
General benchmarks are like general life advice
Bigger isn’t always better
What I’d use instead
CAC Payback Period
Net Dollar Retention
I’ve had a bone to pick with LTV to CAC for too long. And today I woke up and chose violence.
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