About the EpisodeElijah Eilert speaks to Paul Orlando about his book Growth Units to discover how to best calculate Customer Acquisition Cost and Lifetime Value. Paul tells us how to significantly improve common calculation methods and how to use those to make critical business decisions. Understanding revenue and cost on a per unit basis for Startups/innovation projects is vital but even established businesses have a lot to gain from doing it right. Topics and Insights(01:00) Introducing Paul Orlando and his book Growth Units, the foundation of this episode. Paul initially wrote the book as a reaction to the change in teaching environment caused by Covid 19. This insightful and entertaining book was originally designed to assist with the teaching of University of Southern California students.(06:30) An overview of Unit Economics, Customer Acquisition Cost (CAC) and Customer Lifetime Value (LTV).(09:00) Exploring the value of analysing the unit level likeprice per unit cost to serve that unit number of times someone stays to buy that unit over the business level like total revenuetotal cost... The aggregate or business level doesn’t help when the product is still being developed, Product/Market-Fit is not yet established, a profitable channel is still to be determined, and so on.(11:00) Customer Acquisition Cost means how much money it takes a business to bring someone in and turn into a customer such as word of mouth, paid advertising, sales team, and so on. Lifetime Value is a measure of gross profit a business earns from a customer over time. It often takes more time to understand this than it does to understand CAC.(15:00) CAC over LTV is fundamental to understanding product performance and analysing specific customer segments. It provides a much more forensic look into the performance of the business. This is not just helpful from the product development side, but also for figuring out the best way to grow, what kind of customer should or should not be acquired through paid advertisement, referral or stick around for as long as possible. (17:30) To properly calculate CAC, one has to look more granularly into the sales funnel. What happens when a customer comes “in the door”, either physically or online, when and how do they become actual customers. There are essentially two parts to this. (19:00) The different steps in a conversion funnel depend on the type of business and customer behaviours. Pirate Metrics is a great default framework to establish this. (20:00) The boundary between Acquisition and Activation is not always clear, teams have to ultimately figure it out for themselves, as so often - it depends!(23:30) How to calculate Customer Acquisition CostAn Unhelpful way of calculating CAC: total spent on marketing in period / number of new customers in this periodA reason why this is not helpful, is because it misses the time factor. The marketing dollars spent in a particular period might not be related to the customers onboarded during this same time frame. Another reason is that it does...

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