From TechSoup Connect Western Canada's April 5 event with Paul Orlando. https://events.techsoup.org/e/mjf6u7/ How much should you spend on ads or growth at your nonprofit? What is each email address worth? You need to know how to calculate donor/member acquisition costs and lifetime value. Author and University of Southern California Professor Paul Orlando gives a friendly and accessible introduction to Unit Economics. Paul will demonstrate methods to assess and calculate Customer Acquisition Cost (CAC), Lifetime Value (LTV), and more. You will learn: Ways to calculate Customer Acquisition Cost and Lifetime Value with additions like customer segments, cohorts, retention, and more (and why they can be imperfect methods). How to manage the cost of growth along with potential value generated. The difference between growing and scaling a nonprofit.

1. About Paul – Recent History
We won! It changed how I saw the startup world.
Co-founded Hong Kong’s 1st startup accelerator.
Funded companies from around the world, exit.
Run USC Marshall/Greif Incubator: 150+ companies,
$130M+ raised, 30 competitions won, exits. Teach.
Program Director at startup accelerator in Rome/Vatican.
Wrote Growth Units, a book on Lifetime Value and
Customer Acquisition Cost.
Co-founded a health startup and learned the hard way.
Director at community health incubator.
Paul Orlando
StartupsUnplugged.com

3. Cooks
Waste
Ma

5. Lifetime Value (LTV) is the gross profit that a
organization earns over the relationship with a
customer.
Customer Acquisition Cost (CAC) is the cost of
getting a paying customer “in the door.”

6. Customer lifespan x
(Average spend -
Unit costs).
Cost per visit
÷
Conversion rate
Formula to
calculate LTV?
Formula to
calculate CAC?
Lifespan or retention can be
measured in different ways.
Or cost to get them “in the door.”

7. Which should I focus on growing?
Business 1: LTV = $10
Business 2: LTV = $50

8. Which should I focus on growing?
Business 1: LTV = $10, CAC = $1
Business 2: LTV = $50, CAC = $45

9. Which should I focus on growing?
Business 1: LTV = $10, CAC = $1
Business 2: LTV = $50, CAC = $45
But what if I have an opportunity to improve margin and retention?
What if there are many more customers of Business 2?
What if it takes years to gain the LTV and payback the CAC?

11. CAC $ LTV $
Why LTV and CAC can mislead you on growth
We often say that this ratio is good:
1 : 3
1 : 4

12. CAC $
Costs /
Period
Costs /
Period
Costs /
Period
LTV $
...
Revenue
/ Period
Revenue
/ Period
Revenue
/ Period
...
Why LTV and CAC can mislead you on growth
1 : 3
1 : 4
........... ........... years ......................
timing can destroy you:

13. CAC $
Why LTV and CAC can mislead you on growth
Averages can destroy you:
1 : 4+
1 : (negative)
Costs /
Period
Costs /
Period
LTV $
...
Revenue
/ Period
Revenue
/ Period
...
Costs /
Period
Costs /
Period
Costs /
Period
LTV $
...
Revenue
/ Period
Revenue
/ Period
Revenue
/ Period
...

14. LTV is a River…
(Sample Flows)

15. M1 M2 M3 M4 M5 M6 M7 M8
Jan 100% 20% 12% 8% 6% 5% 3% 2%
Feb 100% 31% 16% 13% 10% 7% 5%
Mar 100% 35% 22% 19% 14% 11%
Apr 100% 43% 24% 20% 18%
May 100% 52% 29% 24%
Jun 100% 55% 33%
Jul 100% 57%
Cohort Metrics (Retention)

18. Improving CAC and LTV Calculations
Q. Why do we break out the CAC of different channels?
A. Because not all types of acquisition grow in the same way.
When we break out CAC by channel we can predict what it
will take to grow or scale.
Q. Why do we break out LTV of different customer segments?
A. Because different types of customers behave differently.
Some are more profitable than others.
LTV > CAC. At least in the long-run. A rule of thumb healthy
margin is for LTV to be 3-4+ times CAC.
Break this rule when needed.

21. Learn More: Growth Units
Growth Units, by Paul Orlando. This short,
useful book focuses on Lifetime Value and
Customer Acquisition Cost.
https://www.amazon.com/Growth-Units-calculate-
Acquisition-businesses/dp/B08HB68NL6/
Paul Orlando
StartupsUnplugged.com