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7 Business Concepts You've Never Heard of (But Will Make You LOTS of Money) | Ep 675
The Game w/ Alex Hormozi
Understanding the Lifetime Gross Profit Ratio for Business Growth
Businesses start by defining a niche and gradually expand and redefine their customer base. Success in business involves managing risks that could impact future operations. The lifetime gross profit ratio compared to cost per customer is a critical metric for business success. This ratio indicates how much profit a business makes from each customer relative to the cost of acquiring that customer. Knowing the LTV to CAC ratio is essential for scaling a business successfully. Lifetime gross profit consists of two elements: the lifetime value of a customer and the gross profit per customer. Calculating the lifetime value involves determining how many times a customer purchases from the business over a period or the average lifespan of the customer in the case of service-based or membership businesses. A basic method to calculate this is by tracking customer retention over time. On the other hand, gross profit per customer is the surplus cash remaining after each transaction. Understanding and optimizing the lifetime gross profit ratio is vital for business growth and can be achieved through simple mathematical calculations.
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