Define the acquisition cost
State which costs are included and which customers belong in the denominator. Media-only cost and fully loaded acquisition cost answer different questions. Distinguish a new customer from a returning buyer and account for costs that support several channels without double counting them.
Treat lifetime value as an estimate
Specify whether value means revenue or contribution, the retention assumptions and the time horizon. A young cohort may not have enough history to support a stable lifetime estimate. Report scenarios and sensitivity rather than present extrapolated value as cash already earned.
Connect the comparison to cash and capacity
Even an attractive long-term estimate can require more working capital than the business can support. Review payback, fulfillment and service demands alongside the ratio. Use observed cohort behavior to update assumptions and avoid importing a universal acceptable ratio without considering the model and risk.
Put the decision into practice
- Document included acquisition costs.
- Use a consistent customer cohort.
- Distinguish revenue from contribution value.
- State retention and horizon assumptions.
- Review payback and operational capacity.
Bring the business question, the evidence already available and the constraints that matter. Discuss your next step with Nancy Chou.