In this vlog, we want to reinforce how important the relationship is between Lifetime Customer Value (LTV) and average cost of acquiring the customer (CAC). We will give you an example with a real-life situation that we encountered with Eazl.
Ludell, who is our Marketing Director here at Eazl, has been running tons of Facebook ads tests, to see which audiences respond to our advertising on the social media platform. One of the course platforms that we distribute to is Skillshare. So, we know –because we have collected and analyzed statistics– that, on average, when we bring somebody into our world on Skillshare, they bring us about three to five dollars worth of revenue. That’s five dollars in terms of a Lifetime Customer Value or, if you make an average, four dollars.
What we found is that –with as little as $8 of advertising investment on Facebook– we can reach about thirty thousand people who have liked Skillshare on Facebook. We know that these ads are driving traffic to our courses on Skillshare, which means that we get more enrollments on Skillshare. We see that, for this very small investment, we are bringing in new customers.
Let’s say that we acquire about one-hundred new students from this $8 investment on Facebook. In that case, we’re paying about 80 cents per new student, but we know that the Lifetime Customer Value is somewhere between three and five dollars per student. So that means that, for every student that’s coming in, we’re making that profit spread of about $2.
We cannot just advertise all day to these people because they’ll get sick of us and stop responding to our ads but, essentially, until you find out that that relationship is no longer valid, you could basically put unlimited funds into advertising to that particular audience. If you keep acquiring customers, you’re just basically bringing in more profit.
This is just one example of when we found the LTV to CAC ratio was in our favor and we just decided to go really big on advertising to that particular audience because we know that we’re making a lot of revenue on that little spread.
Learn an easy and practical way to test Facebook ads here.