The right LTV/CAC for a B2C business

The title of this post has too many acronyms in it, but if you’re a B2C business spending your way to the consumer, you know exactly what they mean.  Lifetime Value to Customer Acquisition Cost or LTV/CAC is the critical metric to watch for most B2C companies.  Generally it’s thought that this figure needs to be north of 3x, meaning the customer is worth three times what he/she costs to acquire, but this is a rule of thumb more so than it is empirical evidence based on public data.  In order to use hard data instead of just a rule of thumb, we tried to find public SaaS businesses that disclose their LTV/CAC.  We found only one, but it’s a good one: Lifelock. 

 

Lifelock provides credit score monitoring services to consumers and has been incredibly successful.  Revenue grew from $476mm in 2014 to $588mm in 2015, an increase of 23%.  Growth historically has been even more prolific as revenue in 2007 was only $19mm.   From Lifelock, we can make some important observations about what a successful B2C business looks like:

 

-Lifelock’s LTV/CAC ratio is 5.15x.  This figure was derived from the formula of monthly revenue per customer x 12 x (1-annual retention rate) / CAC.  The numbers are $11.76 per customer x 12 x (1-86.5%) / $203.  Lifelock is a mature business growing 25%, so if you’re a startup growing fast, you need to have an LTV/CAC that is better than 5.15x. 

 

-Over the past three years, Lifelock’s CAC has gone up.  It was $160 in 2013, $173 in 2014, and $203 in 2015.  This makes sense as the next customer for any B2C business is generally going to cost more to acquire, barring major product improvements or bursts in PR. 

 

-The monthly average revenue per member has grown as well.  It was $10.32 in 2013, $11.13 in 2014, and $11.76 in 2015.  These are growth rates of 7.8% and 5.6% respectively and if you’ve got a good product, it’s generally safe to assume modest price increases in your model.  That said, over the same period member retention has declined: it was 87.8% in 2013, 87.7% in 2014, and 86.5% in 2015.  It’s difficult to say whether price increases have caused the gradual erosion of the member retention rate, but it’s something to be aware of: as you increase the price of your product, you should assume declining member retention.

 

My math is as follows:

https://www.dropbox.com/s/gqjvrl49bsedydm/LTV%20to%20CAC.xlsx?dl=0

 

If you know of any other publicly available LTV or CAC metrics for other companies, let me know!   

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