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How much can I afford to spend to acquire a customer (max CAC) given this LTV?

Short answer:

  • Get your LTV. For subscriptions/repeat purchases, estimate with the churn model: LTV = ARPU × gross margin ÷ monthly churn.

  • Pick a safety rule. Common guardrails: LTV:CAC ≥ 3:1 or a payback target (e.g., 3–6 months).

  • Compute Max CAC.

    • Ratio method: Max CAC = LTV ÷ 3 (for a 3:1 rule).

    • Payback method: Max CAC = monthly contribution × target months, where monthly contribution = ARPU × margin × purchase frequency.

Why this matters in El Paso

Cash flow drives growth here. Knowing your Max CAC keeps bids and budgets sane across English and Spanish campaigns. With a clear ceiling, you can scale the channels that pay back fast—and pause the ones that don’t—without guesswork.

Two ways to set Max CAC

A) Ratio method (simple & popular)

  • Rule of thumb: keep LTV:CAC ≥ 3 for paid channels.

  • Max CAC = LTV ÷ target ratio.

    • Example: LTV $350 → Max CAC ≈ $117 at 3:1.

  • When to use: you want a clean ceiling for bidding across multiple channels.

B) Payback method (cash-flow focused)

  • Monthly contribution = ARPU × margin × purchase frequency.

  • Max CAC = monthly contribution × target payback months.

    • Example: ARPU $25, margin 70%, frequency 1/mo → contribution $17.50.
      Target 3 months → Max CAC = 17.5 × 3 = $52.50.

  • When to use: you care about time to cash back (3–6 months for ads; slower channels can tolerate longer).

Tip: Use both. If 3:1 says you can spend $117 but a 3-month payback says $53, cap CAC near $53 until you improve margin/ARPU or frequency.

How the calculator works (101)

  • ARPU (per month): average revenue per customer per month. For one-off purchases, treat ARPU as average monthly revenue from repeat buyers.

  • Gross margin (%): revenue minus variable costs (before overhead).

  • Monthly churn (%): % of customers who cancel/stop each month.

  • LTV = ARPU × margin ÷ churn. (If churn is ~0, LTV becomes very large; use the payback method to stay practical.)

Apply it to your business (step-by-step)

1 – Estimate LTV with the calculator (EN/ES).

2 – Pick your rule: 3:1 ratio and a payback target (e.g., 3 months for paid social/search).

3 – Compute Max CAC both ways; use the lower result as your working cap.

4 – Set bids/budgets so observed CAC stays below the cap.

5 – Lower CAC (tighter targeting, better creative, faster pages, EN/ES landing to reduce drop-off).

6 – Raise LTV (bundles, price review, add-ons/upsells, subscriptions, reminders to increase frequency).

7 – Re-check monthly; update cap as LTV and conversion improve.

El Paso tips (bilingual wins)

  • Match ad language → landing language (EN/ES). This reduces bounce, which lowers CAC.

  • Add Spanish FAQs and a click-to-call that routes to someone who can help in Spanish.

  • Use text/email reminders (EN/ES) to lift repeat purchases—higher frequency raises LTV and your CAC ceiling.

One-week action plan

Day 1: Pull ARPU/AOV, margin, and churn/frequency.
Day 2: Run the LTV calculator; write down LTV and monthly contribution.
Day 3: Set your 3:1 Max CAC and your payback Max CAC; choose the smaller.
Day 4–5: Ship one CAC reducer (better audience/creative/offer, EN/ES page) and one LTV booster (bundle/upsell or subscription).
Day 6: Check early CAC; adjust bids to stay under your cap.
Day 7: Document results; repeat weekly.

FAQ

How do I pick between 3:1 and payback months?
🔹 Use both. Keep 3:1 for safety and 3–6 months for cash-flow. Use whichever gives the lower CAC ceiling.

What if I don’t know churn?
🔹 Approximate tenure from history (e.g., average months active). Churn ≈ 1 ÷ tenure.

Do one-off purchases work here?
🔹 Yes—treat frequency as your average monthly repeat rate (e.g., 0.25 if buyers return quarterly).

How do I lower CAC fastest?
🔹 Tighter audiences, stronger offers, faster pages, and EN/ES landing alignment usually move CAC first.

What raises LTV quickest?
🔹 Bundles/upsells (raise ARPU), small price improvements (margin), and simple subscriptions/reminders (frequency).

My CAC is over cap—pause?
🔹 Don’t scale that ad set. Fix targeting/creative/page, or shift budget to a faster-payback channel.

Use the LTV Calculator

Get your LTV first, then turn it into a Max CAC using the rules below.

Subscription / Repeat LTV (Churn Model)

Estimate lifetime value using ARPU, margin, and monthly churn.

LTV–
Expected Tenure (months)–
Rule of Thumb–
Formula: LTV = ARPU × margin ÷ churn. If churn is 0, LTV is undefined (very long tenure).

(Tap EN/ES to switch languages.)

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Other questions this article asnwers

  • “What’s my customer lifetime value if ARPU is $25, margin 70%, and churn is 5%?”

  • “How many months do customers stay on average?” (tenure = 1 ÷ monthly churn)

  • “If I cut churn from 8% to 5%, how much does LTV go up?”

  • “How much can I afford to spend to acquire a customer (max CAC) given this LTV?”

  • “Is my LTV at least 3× my CAC? (healthy payback rule)”

  • “What churn rate do I need to hit an LTV target of $X?”

  • “What happens to LTV if I raise ARPU (price) or improve margin?”

  • “What’s my LTV expressed as a multiple of monthly margin?” (e.g., at 5% churn, ≈20×)

  • “If churn is near zero, what does that mean for LTV and growth?”

  • “Can I use this for repeat e-commerce?” (Yes—treat ARPU as average net revenue per month.)

Main takeaways

  • Max CAC (ratio) = LTV ÷ 3 (or your chosen ratio).

  • Max CAC (payback) = monthly contribution × target months.

  • Use the lower ceiling until conversion, ARPU, margin, or frequency improve.

  • EN/ES alignment cuts CAC; bundles/subscriptions raise LTV—both expand what you can afford.