This video shows how to calculate and compare the lifetime value of a customer and the customer acquisition cost.

The lifetime value of a customer and the customer acquisition cost should be calculated to assess whether a company’s business model (or a particular product) is sustainable. If the customer acquisition cost exceeds the lifetime value of a customer, this suggests that it is too expensive for the company to acquire customers and that the company will ultimately lose money (unless something changes). A good ratio of the lifetime value of a customer to the customer acquisition cost is at least three to one, since it must be remembered that the company needs to cover non-customer-acquisition costs as well to remain in business.