The Economics Of Your Small Business


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The economics of a small business is based on two basics factors: the life time value of a customer or LTV and the cost of customer acquisition or COCA.

Creative Commons License photo credit: AnnieGreenSprings

The LTV is simply the sum total of revenue you expect to be generated from an average customer. If that customer is a one time customer then the current revenue is the LTV. If not it is the sum of all revenues generated from that customer over the life of the customer relationship with your company.

The COCA is the cost to your company of getting and keeping that customer. It includes sales costs, marketing costs and the cost of customer support. COCA can be calculated by totalling the above costs over a period and spreading that cost over the number of customers acquired in that period.

If your LTV is less than your COCA, you are losing money on an average customer and should try to either decrease the cost of customer acquisition or increase the revenue that the customer brings in. If neither of these is achievable, then you should question the viability of staying in business.

Republished with author's permission from original post.

Jim Smith
YCHANGE International
Jim Smith mentors entrepreneurial start-ups and counsels small to mid sized companies that are looking to expand or are under performing or under capitalized.


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