Disciplined Entrepreneurship: 24 Steps to a Successful Startup

STEP 17

Calculate the Lifetime Value (LTV) of an Acquired Customer

IN THIS STEP, YOU WILL:

• Add up the revenue that you can expect to receive from an individual customer.
• Discount the revenue based on how much it will cost you to repay investors over time.

Now that you have determined at least a first pass on your value capture model and specifics, you can start to do the simple fundamental math for a new venture. Can you acquire customers at a cost that is substantially less than their value will be to your new venture over the customer's lifetime?

So far you have done a lot of very important analysis grounded in real-world customer interaction to see generally if and how your new venture would work. Now you will do the math or “unit economics” to discern whether it is a sustainable and attractive business from a microeconomic standpoint. The Lifetime Value of an Acquired Customer (LTV) calculation, along with the Cost of Customer Acquisition (COCA) calculation, will help you determine ...