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Why Knowing Your “Cost Per Acquisition” and “Lifetime Customer Value” Are Critical to Your Business

If you want to be successful in any business then it is critical that you acquaint yourself with two very important terms.

What Is Cost Per Acquisition?

The first is “Cost Per Acquisition” or CPA for short.

Cost Per AcquisitionCPA is the amount of time and/or money that one has to spend in order to acquire one new customer. So, as an example, if you spend $2,000 on a marketing campaign and you acquire 5 customers from that campaign, then your CPA is $400 per customer. If you also can spend 40 hours using free resources and acquire a customer for no additional cost, then that would drive the CPA down to $333 ($2000 / 6).

What Is Lifetime Customer Value?

The second is “Lifetime Customer Value” or LCV for short.

LCV is the average amount of money you earn over the lifetime of each customer you acquirelifetime customer value whether they leave the business or not. So, for example, let’s say you acquired the 5 aforementioned customers and they purchased the following with your business over their lifetime with your business:

  • Customer 1: $300
  • Customer 2: $1500
  • Customer 3: $150
  • Customer 4: $2500
  • Customer 5: $1000

Then the average of these 5 customers would be $1090 ($5450 / 5).

As you add more customers you can begin to calculate a pretty accurate and consistent LCV.

Why Are Cost Per Acquisition and Lifetime Customer Value Important?

The reason this is important is because you can now determine what you are willing to spend to acquire every new customer.

Using the above example, would you be willing to spend $400 to acquire a new customer if you knew you could expect to receive $1090 in return?

I know I would! That’s a $690 profit on every customer I get.

The point of all this is that I run into people all the time who have an aversion to spending money to build their business. They think about the $400 instead of what the $400 can turn into.

It’s the people who are willing to invest in their business with time and money who eventually become successful.

Comprehending this is the name of the game.

Once they understand this important concept, then they can go about testing various marketing strategies and determining which ones provide the lowest CPA.

LCV is usually based on the value and service that is provided to the customer by the business. The better the value and service, the more likely a customer will be to either stay a customer, or repeat as a customer. So it’s critical for the business to focus on the back end once the acquisition of the customer is completed.

These are the types of strategies we teach with Project AWOL and you can start learning them today by joining us for free.

AWOL stands for Another Way of Life and our goal is to show people how they can break away from their current circumstances and forge out a new way of life for themselves, their family, and their friends.

If you haven’t joined Empower Network yet, then click the button below and sign up. Then return here and join Project AWOL.

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