Customer Lifetime Value
I got my 1st order! But not until after I had spent $150 on Facebook and Instagram ads. Of course, it is just one data point and I don’t think too much can be inferred. Still, I’m analyzing the shit out of it.
I’ve been open a week, insofar as I can take orders. But if you were to only take data into account, it would seem like my cost of customer acquisition is $150 per customer. Is that out of the question?
The rule of thumb is CAC (Cost to Acquire a Customer) should be a third or less than LTV (Lifetime Value). Customer Lifetime Value is the net profit an average customer generates over the lifetime of their relationship with your company. In this scenario, if my CAC is $150, my LTV needs to be $450 or more. That means that my gross sales per customer would need to be in the thousands to generate a net profit of $450. Therefore, I don’t believe $150 is an accurate number. But why the discrepancy?
Because there are key factors that aren’t even in play yet, such as organic word of mouth spreading. I only know 4 people in this city so the beginning will seem even slower than it should.
Sometimes data doesn’t tell the whole story. Of course it is discouraging to only have 1 customer out of 20,000 ad exposures, but this business is so new that it will take time to build up trust and garner customers.
My job is to create a body of work that earns me trust.
I’m playing the long game. My ad campaigns are just my company’s introduction. Many of the people who took interest will be retargeted and maybe by then the idea of hiring Feather will have matured in their mind. My job is to create a body of work that earns me their trust and attention. That body of work is just beginning and will take time to come to fruition.
This one data point has already influenced my long term thinking. I should not only be working to bring down the CAC, I should also be working towards increasing the LTV. This means nurturing each customer now in ways that may not scale, and that is exactly what I plan to do.
Specifically, I plan to
- Offer each customer a discount immediately upon delivery for a social media shoutout.
- Offer a discount immediately for a selfie with me — which doubles as content for my own social media feeds.
- Provide each customer with a Welcome Package that includes gifts and ways to refer other customers.
- Design subscription packages that offer customers discounts for routine service.
The bottom line is that this one data point has helped to make clear that the work ahead will not be easy. It could even be the case that I got lucky, and after more data points I realize that my CAC is actually higher than $150.
One thing that is not accurately represented in this data is my time. There’s nothing stopping me from getting customers door to door once my Solicitor’s Permit arrives. In the meantime, I’m going to put together these welcome packages so I can offer them as gifts when I do head out for my door to door adventures.
It is not lost on me that my time should be included in that CAC, and it does have monetary value. After all, I do need to eat! And that’s the thing isn’t it.
This shit is supposed to be hard. Balancing personal needs with business needs is a core part of entrepreneurship. I’m supposed to suffer in the short term for the long term payoff.
As I said, I’m playing the long game.
To Do List
- Document the back-end process from order to delivery including calendar.
- Create Welcome Packages for new customers.
- Write a template email for reaching out to influencers to offer free service.
- Build a habit of sending out emails to influencers.
- February Budget Summary
- Create a plan for the Instagram account.
This story is part of a series documenting the journey of a 2016 Dallas startup called Feather. For your reference here is the Table of Contents for the series.
Previous Story: The Virtuous Cycle of Attention and Trust
Next Story: February Summary
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Thanks for reading!
