How to hack your revenue growth

A good rule of thumb for identifying whether a persona is worth going after is where the LTV (customer lifetime value) is 3 times more than the CAC (customer acquisition cost). 

If you want to find opportunities to hack your revenue growth, consider an advanced application of the LTV to reverse engineer a targeted funnel and calculate the customer value at each step.

Use of conversion funnel to hack growth

For example, let’s say that at the top of the funnel, you start by bringing in customers with online ads that take them to a landing page. Next, you’re trying to get them to sign up for your free trial, and after that agree to a free consultation with one of your sales, and finally subscribe to your service.

First off, you need to identify the conversion rate between the steps in this funnel. Now, assuming you found out on average the LTV for some of your personas is $290, and your minimum gross margin is 30%.

You take your LTV minus your gross margin and you'll get $203. You can think of this figure as the total cost you can spend on acquiring a customer and still making your gross margin. 

Finally, you can calculate the customer value at each stage of the funnel by working reversely (circled in yellow in the image above). 

By identifying the customer value at each step, you will also find the conversion value for what it means when a customer goes from one step to the next one within your funnel (circled in red in the image above).

You can use this information to guide critical marketing decisions such as how much you could pay for a cost-per-click advertising campaign for each click.

When there is a trade event that is going to cost you $1000 to join and you'll get 70 sign-ups from the target persona, in this case, it is a profitable decision by saving $421 to get 70 sign-ups as initially it costs $1421 to get the same number of sign-ups ($20.3 x 70).

In summary, an advanced application of the LTV is to reverse engineer a target funnel and calculate the customer value at each step. Subsequently, you can calculate the value between conversion steps and use that information to make smarter marketing decision.