A new tiffin service in your area offers your first week free. Seven days of home-style lunches, delivered, for nothing.
It looks like a terrible deal for them. The food and delivery cost them about ₹700, and you’ve paid nothing.
But they’re not thinking about this week. They’re thinking about the next ten months.
Two numbers
Every business that pays to win customers lives by two numbers.
Customer acquisition cost (CAC) is what it costs to win one new customer. Add up the ads, the free trials, the referral bonuses and the sales team’s time, then divide by the number of customers who signed up.
Lifetime value (LTV) is how much profit that customer brings in while they stay. A simple version: the profit you make from them each month, multiplied by how many months they stay.
Say the tiffin service charges ₹2,500 a month and keeps ₹500 of it as profit. The average customer stays 10 months. That customer is worth ₹5,000. Spending ₹1,500 to win them, free week included, starts to look sensible.
Think of planting a mango tree
You pay for the sapling, the soil and the watering long before you see a single mango. For years, the tree only costs you.
Then it fruits, season after season. A good customer is a mango tree. CAC is the sapling. LTV is every mango it will ever give you.
The rule of thumb
Many investors look for an LTV at least three times the CAC. Below that, there’s little room for mistakes. Above it, the business can afford to spend more on growth.
The second question is how fast the money comes back. Earning back your CAC in four months is very different from earning it back in four years.
Where you’ll spot it
- “Refer a friend, you both get ₹100.” That’s a CAC of ₹200, often cheaper than ads.
- Credit card joining bonuses. The bank expects years of fees and interest.
- Generous free trials. They’re betting you’ll stay long after they end.
The catch
CAC is a fact. You’ve already spent it. LTV is a guess about the future, and guesses are easy to inflate. If customers leave after three months instead of ten, that ₹5,000 customer is suddenly worth ₹1,500. That’s exactly what it cost to win them, with nothing left for rent or salaries.
That’s why the cheapest growth is keeping the customers you have. A customer who stays longer raises your LTV and costs nothing to win again.
A customer you keep is a customer you never have to pay for twice.
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