How much can you really afford to pay for a new customer? The answer isn’t as simple as your Facebook ad spend. In this episode, Ralph Burns and Amanda Powell break down customer acquisition cost (CAC) and customer lifetime value (CLV) to uncover what businesses should actually be spending to scale profitably. They discuss how marketing costs go beyond ad spend, why your marketing team and operational expenses matter in CAC calculations, and how to use a 3:1 CLV-to-CAC ratio as a benchmark for growth. If you’re struggling with ad budgets, profitability, or scaling your business, this episode is a must-listen.

Chapters:

• 00:00:00 - Welcome to the Episode: How Much Should You Pay for a Customer?
• 00:00:44 - Why Knowing Your Customer Acquisition Cost (CAC) is Crucial
• 00:06:20 - The Simple Formula for Calculating Customer Lifetime Value (CLV)
• 00:08:15 - How to Calculate CLV Using a Basic Formula
• 00:10:45 - Breaking Down CLV for Different Business Models
• 00:12:10 - How Long Does It Take to Earn Your CLV?
• 00:14:50 - Fast vs. Slow CLV Payback Periods & What They Mean
• 00:17:54 - Transition to Determining Customer Acquisition Cost (CAC)
• 00:26:40 - Finding the Right Balance Between CLV and CAC for Growth
• 00:29:52 - Key Takeaways: The 3:1 Rule for Scaling Profitably

LINKS AND RESOURCES:

• Tier 11 Jobs
• Perpetual Traffic on YouTube
• Tiereleven.com
• Mongoose Media
• Perpetual Traffic Survey
• Perpetual Traffic Website
• Follow Perpetual Traffic on Twitter
• Connect with Lauren on Instagram and Connect with Ralph on LinkedIn

Thanks so much for joining us this week. Want to subscribe to Perpetual Traffic? Have some feedback you’d like to share? Connect with us on iTunes and leave us a review!

Mentioned in this episode:

AppSumo - 13% off with code traffic13

Tier 11 Data Suite