Want to scale? Make sure your LTV is greater than your CPA

avc.com

10 points·DanLivesHere··8 comments

Unusual for Fred Wilson to repost spammy content. Did you count how many times the newsletter - by the way you should subscribe - is mentioned?

And then the content was very basic.

I wrote it, with two subscribe links, for what it's worth.

The content is basic as per his MBA Monday's theme. He tackles one basic concept each Monday.

There's a lot of good stuff in the comments.

I'm surprised he wrote something like this. This seems like the most obvious business information you can write beyond revenue - expenses = profits.

David Skok of Matrix Partners has blogged comprehensively on this topic: http://www.forentrepreneurs.com/

The content may seem obvious, but how many startups can you think of that have utterly failed to achieve LTV > CPA?

My first startup totally misunderstood the concept in reverse fashion -- we miscast the definition of "customer," and therefore thought our LTV was tiny when it was actually huge, and focused our acquisition paths incorrectly.

That's why I think about ideas in these terms so much.

Actually seems backwards to me. Of course you want LTV > CPA... but when we're talking about scaling, you often get increasing returns to scale. Which means that you can start with a poor LTV/CPA ratio, even an unprofitable one, and end up with a better one after scaling.

tl;dr - You shouldn't spend more to acquire a customer than she is worth to you.

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