This is built from a blog post from Jason Cohen at [http://blog.asmartbear.com|A Smart Bear]. It is designed for Software as a Service (SaaS) companies (primarily web apps supported by subscriptions) that are bootstrapped and have limited data to work from for predictions and decisions.

[http://blog.asmartbear.com/bootstrapped-cpc.html|Read his entire post] for more details.

Life time value (LTV) is the total amount collected from a customer over the life of their relationship with your company. Monthly recurring revenue (MRR) is the average amount you charge all customers each month. In Jason Cohen's post he expects the average customer to stay with the service for 20 months and spend $50 per month. As he points out, some customers pay only one month then cancel and some stay with a service for years.

Monthly recurring revenue = 5

Expected months = 48

Life time value = 240

Cost to acquire a customer (CAC) is the average total cost to get a new customer, including direct and indirect costs. CAC must be less than LTV. If CAC is higher then it costs more to acquire a customer then you get back from that customer. Funded companies might be able to do this for a while but bootstrapped businesses will run out of money. Plus, remember, CAC only covers part of the business expenses. Jason recommends divide by 5 for bootstrapped businesses and divide by 3 for funded companies.

Cost to Acquire a Customer = 48

Conversion rate is the percentage of visitors to your website who actually convert to a paying customer. In general, the data indicates that you should expect a 1% conversion rate.

Conversion Rate = 1

Spend per visitor is how much you can spend to attract a visitor to your website, per visitor. So if this is pay per click advertising, per instance, you can bid as much as $2 per visitor. This amount covers your costs and leaves a littl extra for a profit.

Spend per visitor = 0.47999999999999998

Monthly recurring revenue

Expected months

Life time value

Cost to Acquire a Customer

Conversion Rate

Spend per visitor

-------------

ltv

cac