The Subscription Economy
Lifetime Value and Customer Acquisition
A subscription business earns from each customer over time, so it compares lifetime value with the cost of winning that customer.
Unit economics decide success.
Lifetime value
The total profit expected from a customer over the period they stay.
Acquisition cost
What the firm spends on marketing and sales to win them.
Payback
How long before a customer’s payments cover the cost of winning them.
Rule of thumb
Healthy businesses earn several times their acquisition cost over a customer’s lifetime.
A ten-month payback
A firm spends ₹1,000 to gain a customer who pays ₹100 a month, so it recovers its cost in ten months.
Chasing growth without checking payback
Unprofitable growth can be fatal.
Key takeaways
- LTV measures lifetime profit.
- CAC measures cost to win.
- Payback shows recovery time.
- LTV should exceed CAC.
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