Very interesting post, and something we as a company in general, and me in particular, have been looking at for quite a while. Once you start diving into these numbers, its fascinating to see how they can structure your business and guide your operations. For me these numbers have always been a true guide of operational and cash efficiency rather than for showcase purpose. It determines the true health of a business.

We do CAC / LTV analysis in a couple of ways:

1. Overall business perspective — how much did we spend overall in marketing for the month, and when did that cohort of users return the money in terms of gross margin (was seriously surprised that it had to be spelled out to do cohort analysis based on gross margin and not revenue!)

2. Channel wise: how much did we spend on each channel in a given month, and their cohorts. What is the LTV : CAC ratio based on each channel.

But as correctly mentioned, the more important aspect is the payback period. The ratio is all fine and good, but how long exactly is your life in Life Time Value! So the more pertinent metric for us how soon can we recover that money and then start getting profitability from that customer.

The payback period is actually what determines priority for us in terms of marketing channels, not necessarily the LTV : CAC ratio.

For channel wise calculation though, it starts getting interesting when you factor in attribution (we are not doing that yet). That is the next step: get the “true” marketing spend and “true” revenue / cohort per marketing spend to determine each channel’s payback period. Usually every other channel eats Display’s lunch, it will help us scale display appropriately.

Retargeting is also interesting for us and we try to segregate it from core marketing spend and try to add it to the original marketing spend but we haven’t really figured that out yet. But still, by far, my favorite analysis to keep an overall pulse on the business.