LTGP, LTV, CAC, WTF?
Do you know your agency's most important metrics?
Hey agency owner,
Last week, I watched a video that was extremely illuminating for me. It was so illuminating, in fact, that I want to share it with you.
It’s this one:
You’ve probably seen Alex around the internet. He puts out insanely useful and accessible business content.
I loved this video because it made a few things clear to me in my agency (EditorNinja):
We have a great LTGP to CAC ratio.
We’re under-investing in marketing.
“Hang on, John,” you probably just said. “What the heck are LTGP and CAC?”
You’ll understand after watching the video, but in short:
LTGP = “Lifetime Gross Profit.” This is what your business makes after the cost to deliver your service. Anything over 5 is great, anything under 3 is bad.
CAC = “Client Acquisition Cost.” This is what it costs you to acquire a new client (not just to acquire a lead!) You calculate this by dividing the amount you spent on marketing that month (ad spend, people, etc) by the number of new clients you signed.
Agency owners are great at talking about two metrics, leads and revenue, which are great to know (and you should know these), but they won’t give you the insight you need to grow your business.
Once you know all of the following, you will be able to:
Lifetime value (LTV)
Lifetime Gross Profit (LTGP)
CAC (Client Acquisition Cost)
New customers acquired
Churn
Sales velocity (new accounts per month) times LTGP (your monthly growth maximum)
Sales velocity / churn (the max size your business will achieve with its current LTGP, CAC, customers acquired, and churn).
I hope this triggers some thoughts and insights for you. I’d love to hear them, if so.
Just hit reply and let me know what you discover.
John “Metrics” Doherty