Startup Killer: Customer Acquisition Cost

Two of our current companies are thinking about maybe needing follow on investments during next year.

So, of course, we're thinking about what we'll need to show potential A-series investors to get them interested. We have time to get those numbers and get them right. 

One of the key metrics we need to show is that the cost of customer acquisition is much less than the value of that customer. 

So I found this excellent blog post, which puts all my old rules of thumb about sales channel strategies, costs of customer acquisition into a logical framework.

Use those simple spreadsheets they give you, people! Of course, the costs etc are for the USA, not for Sweden. The thinking is exactly the same. 

Over the years, I've had a few rules of thumb - for Lensway, the profit from three orders had to be more than the cost of customer acquisition. It was :) Three orders was about nine months worth of contact lenses, back then. Customers did generally buy contact lenses from Lensway far more than three times. That fits the model in the excellent blog post. 

When doing direct international sales, with all the salaries, travel etc. I've thought that a software deal had to give more than 1MSEK to be profitable, plus follow on revenue of 150KSEK/year. This is not about the first reference customers; they're likely to be more expensive than that by far. Not the deals you dream of when your brand name is well known, either. This is about the normal early stage deals, the ones you'll be doing in a year or so. Given Swedish salary levels, that just about fits the model as well. 

So I haven't been wrong, but experience has given me rules of thumb rather than a logical framework. And HERE IS the missing logical framework. Hallelujah.