A thread for fellow founders about unit economics and KPIs to obsess about.

If you’re building for the African market, I implore you to focus on your numbers. This my have a fintech bias, bear with me.

LTV (lifetime value) - this is the net revenue you make from a customer while they’re with you, be it for 1 day or 10 years. Estimate the average amount you make from a customer over the life of your relationship. This is important in deciding how much money to spend in CAC..

CAC (Customer Acquistion Cost) - this is the amount of money it costs you to acquire a customer. This is easy to measure and should be split into channels used. Free customers shouldn’t be average out with paid.

Regardless of the strategy you’re using, be it paid social or google ads, SEO, referral rewards, rewards, word of mouth, ambassadors, influencers, etc. Measure the cost.

LTV and CAC have a relationship. It’s a no brainer that the LTV should be higher than the CAC. Some insist that it should be at least 3:1. This makes sense, the higher, the better.

Sometimes the business does well and the LTV:CAC ratio is very high, good for you. This gives you leeway to spend even more money and grow faster. Not doing so means you’re leaving a lot of money on the table.

But it’s important to also look at payback period. The payback period is the time it takes you to get back your CAC I’m net revenue from the customer. For B2C anywhere between 3 to 6 months is fine. 3 is great. 1 is superb. In our case, we cap it at 3 months.

So even if our LTV:CAC ratio is super high, we don’t pay more than monthly revenue per user * 3 months in CAC. We cap it so we can get the money coming back and working more and more.

Lastly, I want to mention what I think is the most important metric - Retention: this is your business’ ability to keep a user after getting them. If they come and leave after a short time, we have a massive problem on our hands.

I like to see 6 months retention between 35% and 70% for B2C companies. This means that for every user that was acquired in Jan, you should have at least 35% still with you on June/July.

Some people look at 12 months retention which gives you an even better picture of the business. Retention above 60% is great. Above 70% spectacular.

To end, measure LTV, CAC, payback period and retention. Make sure your minimum numbers are 3:1 for LTV:CAC ratio, payback period less than 6 months, retention at 6 months about at 30% minimum. Any numbers worse than this and it’s not a good sign.

Measure, measure, measure. END.