How much revenue should go back into marketing?

When it comes to marketing, instead of asking, “How much should I spend?” ask, “Am I spending it the right way?” The key is focusing on two numbers: LTV (Lifetime Value) and CAC (Customer Acquisition Cost). Let me break it down for you.

What Is LTV and CAC?

• LTV: This is the total amount of money a customer spends with you over time. The longer they stick around or the more they buy, the higher your LTV.

• CAC: This is how much it costs you to bring in a new customer. This includes ad spend, discounts, or anything you do to attract them.

The Rule to Follow: LTV

A good ratio is 3:1. This means for every dollar you spend to get a customer, they should spend three dollars with you. If your ratio is lower, it’s a sign to either increase how much customers spend (raise LTV) or reduce what it costs to get them (lower CAC).

How to Increase LTV

1. Make customers happy so they keep coming back.

2. Offer more products or services they’ll want to buy.

3. Create loyalty programs to reward repeat customers.

How to Lower CAC

1. Target the right audience so your ads aren’t wasted.

2. Use referrals or word-of-mouth to get free customers.

3. Make your website or checkout process super easy so people convert faster.

So, How Much Should You Spend?

Don’t think of marketing as a percentage of revenue. Spend only when your LTV ratio is healthy. Fix your numbers first by increasing LTV and lowering CAC. Once your ratio is above 3:1, you can confidently invest more in marketing to grow.

Youtube Video Of The Day

This is a video on CAC:LTV ration. A must watch if you read this newsletter.

How Can We Help

Book a call 1-on-1 Business Audit: https://calendly.com/stay_perpetual/d2c-intro-call

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