CPL, CPA, AOV and LTV are metrics that every brand should be comfortable with. Once you have a really good understanding of these metrics, you can turn your hand to the LTV : CAC ratio which is a good predictor of business performance.
The higher the ratio, the better your business is performing. If your LTV : CAC ratio is less than 1, you'll need to start thinking about how to improve your sales and marketing, while selling more products or services at the same time. More on LTV : CAC ratio in this blog.
But first, let's understand the basics:
CPL = Cost Per Lead
The amount of money you need to spend to win a lead. A lead is a person who is not yet a customer. However, using marketing, advertising and the sales department, you will be able to convert a portion of your leads to customers.
CPA = Cost Per Acquisition
The amount of money you need to spend to win a customer. The more well-known and desirable your brand is, the easier it will be to win your best customers through advertising and other acquisition channels, such as events, and hence the lower your CPA will become.
More on your best customers and how they help you become more profitable here.
AOV = Average Order Value
This is the average basket size across all your customers. If you have two customers, one buying vitamins for £25 and the other buying vitamins and protein for £75. Your average order value is £50. Your best customers will be those who buy lots from you, hence increasing the AOV.
LTV = Lifetime Value
If that £75 customer above buys from you four times each year and churns after 4 years, their LTV is £75 * 4 * 4 = £1200. The longer the lifetime, the higher the value. Consider a family who always shops from Whole Foods—from generation to generation. They would have a much higher lifetime value compared with a one-off purchaser. Your best customers will stick with you over time.
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