Acquisition cost and lifetime value

Two numbers decide whether paid growth works: what a new customer costs to win, and what that customer contributes before disappearing.

Measuring the cost properly

Total marketing spend divided by new customers, not by all orders. Including repeat orders in the denominator makes acquisition look cheaper than it is, and the error grows as the customer base grows.

Spend includes agency work, tools and the time of anyone working on acquisition, not only the media budget.

Measuring the value properly

Lifetime value should be measured as contribution, not revenue. Revenue-based figures overstate by exactly the gross margin, which is the difference between a business that works and one that does not.

The ratio

A ratio around one means the business buys its own turnover. Comfortable businesses sit well above that, which leaves room for fixed costs and for a period of paying back the acquisition investment.