The most important B2C metric
Lifetime Value to Customer Acquisition Cost, or LTV/CAC, is the critical metric to watch for most B2C companies. Generally it’s thought that this figure needs to be north of 3x, meaning the customer is worth three times what he/she costs to acquire. Data from publicly traded companies is notoriously hard to find and indeed we found only one example: Lifelock. The data is stale (Lifelock was acquired in 2016), but we can make some important observations about what a successful B2C business looks like. In case you’re unfamiliar, Lifelock provides credit score monitoring services to consumers. Revenue grew from $476mm in 2014 to $588mm in 2015, an increase of 23%. Growth historically has been even more prolific as revenue in 2007 was only $19mm. Observations and data are below.
Lifelock’s LTV/CAC ratio is 5.15x. This figure was derived from the formula of monthly revenue per customer x 12 /(1-annual retention rate) all divided by CAC. The numbers are $11.76 per customer x 12 / (1 – 86.5%) / $203.
From 2013 to 2015, Lifelock’s CAC went up. It was $160 in 2013, $173 in 2014, and $203 in 2015. Many mature B2C businesses may experience rising CAC, but it’s also common to see CAC stabilize for a while or even fall as the business really starts to scale.
The monthly average revenue per member grew as well. It was $10.32 in 2013, $11.13 in 2014, and $11.76 in 2015. These are growth rates of 7.8% and 5.6% respectively and if you’ve got a good product, it’s generally safe to assume modest price increases in your model. That said, over the same period member retention has declined: it was 87.8% in 2013, 87.7% in 2014, and 86.5% in 2015. It’s difficult to say whether price increases caused the gradual erosion of the member retention rate, but it’s something to be aware of: as you increase the price of your product, you should assume declining member retention.
We wish more public B2C businesses would share as much data as Lifelock did, but it is a good example of how key metrics can trend. It also sets the bar for where you want to be: ~5x. Lifelock ultimately went public with those numbers so if you can achieve similar stats, you’re in good company.
Visit us at blossomstreetventures.com or email me at firstname.lastname@example.org