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Whether you are a new business owner interested in evaluating your startup’s financial position, or if you are an investor performing due diligence before entering an investment agreement with a new firm, it is worth understanding the concepts of Customer Lifetime Value (CLV).   Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV/LTV) are two crucial components for business valuation. Both concepts go hand in hand, as ideally, their respective values should be inversely proportional.   What is Customer Lifetime Value (CLV or LTV)? Customer lifetime value shows how much profits your business earns, on average, from a single customer over their course of your business relationship. It is essentially a measurement of how valuable a customer is to your company, not just for a single purchase, but across your entire business relationship.   The higher the CLV, the more valuable the customer is for your business. This is a very valuable metric for potential investors for several reasons:   Firstly, it is compared against Customer Acquisition Cost (CAC) to determine whether it is worth it to invest money in acquiring a customer in the first place It allows investors to see how much a single customer’s business contributes to the revenues and profits of the firm It costs less to keep existing customers than it does to prospect new ones, so it is worth seeing how much value an existing customer is providing to the business   Therefore, investors will consider customer lifetime value when performing valuation of your business’ financial position as part of their due diligence.   The most basic formula for calculating CLV/LTV is as following:   Customer Lifetime Value = (Customer revenue per year x Duration of customer relationship in years) – Total cost of acquiring/serving the customer   What is Customer Acquisition Cost and How Does it Relate to CLV? Customer acquisition cost (CAC) shows investors how much it costs your business, on average, to gain a single client or customer. Costs include advertising fees, sales commissions, referral fees, and other marketing expenses.   CAC is closely investigated alongside LTV during financial valuation. This is because on one hand, CAC shows the total cost of acquiring a single customer, while LTV shows how much that customer will be worth throughout their lifetime with the business.   Very simply put, an investor will be more willing to invest in a business that has low CAC, and a much higher LTV. This is because it shows a greater potential for profit generation.   The Best Financial Valuation Agency in Pakistan Here at Vixperts, we help Pakistani startups and businesses grow their business and raise millions of dollars in investment! If you are interested in learning more about the CAC and LTV of your business, contact us today. We can provide an in-depth financial valuation of your Pakistani business, and provide the best accounting, bookkeeping, and financial service.. Get in touch today for a free diagnosis of your startup’s financials!

When you start running a business, it can become very confusing to keep track of every metric and KPI that is supposed to measure your startup’s success.   The truth is that while many metrics are good for getting a general idea of your company’s financial position, very few actually give meaningful, long-term insights into the sustainability and success of your Pakistani startup.   These long-term, valuable metrics are what venture capitalists and investors are interested in when it comes to business valuation. When performing their due diligence, investors will pay special attention to certain metrics. This includes the customer acquisition cost (CAC).   What is Customer Acquisition Cost (CAC)? The customer acquisition cost (CAC) refers to the best, most accurate estimate of the total cost of acquiring a new customer. There are many costs involved in bringing in a new customer or client. These costs involve sales staff salaries, advertising expenses, marketers salaries, etc..   All of these costs are totalled up, and then divided by the total number of customers that you acquired during the time period. This will give you the total CAC.   The formula for calculating customer acquisition cost (CAC) is simple:   CAC = Total money spent on sales/marketing to acquire customers / Total number of customers   Why is Customer Acquisition Cost Important for Your Business? Now that you know how to calculate CAC for your Pakistani startup, you may be wondering why it is important.   The primary reason is that it is used in comparison with Customer Lifetime Value (CLV), which shows how much revenue you will acquire from a single customer over the lifetime of their relationship with your business.   If the CAC is larger than the CLV, or if there is not enough of a difference between the acquisition cost and the customer’s lifetime value, then it indicates that it may not be profitable or justifiable to continue spending that amount of money on acquiring customers.   Secondly, investors are usually very interested in the CAC, and it is a large part of their due diligence. This is because when you apply for venture capital or another type of financing, investors are interested to know how much of their capital will be spent in bringing customers into the business. Once again, this is compared against the CLV to determine whether it is a worthwhile investment.   Find the Best Financial and Accounting Help for Your Pakistani Startup Now you know why the customer acquisition cost is important for your business! However, there is still a lot more to learn. For the best financial, bookkeeping, and accounting services in Pakistan, turn to Vixperts! We help Pakistani businesses and startups make wise financial decisions while helping them to raise millions of dollars in financing! Contact us today.

When you’re starting a new business, there is a lot to consider. Gathering capital, selecting investors, and hiring employees are all essential activities for new startups. However, it is important to be cognizant of your funds, assets, capital, and fair market values. Many new business owners dive in head first without taking a minute to organize their finances. However, taking a step back to create and maintain an accurate cap table can prevent a lot of trouble in the long-run. What is a Cap Table? A capitalization table, commonly referred to simply as a cap table, is a list of all the securities your company has issued and who owns them. Securities include common equity shares, preferred equity shares, stock, convertible notes, warrants, and equity grants. In the simplest terms, a cap table is a record of who owns what inside of your business, including stock, shares and assets. Typically, a cap table will include the following information: Names of shareholders Number of shares (both common and preferred) Fully diluted shares Percent ownership Stock class Price per share Value At the same time, the capitalization table will also show a breakdown of the total number of shares in the company, including: Authorized shares Outstanding shares Unissued Shares Shares reserved for stock option plan Having a neat and organized cap table is very useful. Firstly, it is used to show investors before they put any money towards your company for their due diligence. It also makes valuation of your business and its financial position much easier. By maintaining a neat and organized cap table, you can see how many shares you have available in your option pool at any given time.  It prevents you from overselling or underselling shares. Cap Table Mistakes to Avoid Now that you understand what a capitalization table is, and its importance for your Pakistani startup, let us take a look at the major cap table mistakes that every new business should avoid. Not Regularly Maintaining the Table As a rule of thumb, you should update your capitalization table any time there is a chance in the stock ownership of your company. Failing to maintain this record in real time can create a lot of confusion and headaches down the road. To avoid this mistake, update your cap table after any of the following events: Financing Liquidity changes Employee grants Option exercises Employee termination Not Using Proper Software Tools When you first start out, it may seem simple enough to maintain the record on a standard Excel spreadsheet. However, as your business grows there will be many financing changes, and manually maintaining the table will become too difficult. Therefore, you should look into getting a proper software tool early on. This will allow you to automatically update the table whenever there are changes, and will reduce the risk of inaccuracies. Entering Inaccurate Information We cannot stress enough on how important it is to enter complete, accurate information in your capitalization table. Failure to do so can cause a lot of wasted time tracking down the correct information in the future. Therefore, be very conscious of entering true and accurate information. This includes correct financial information, as well as complete shareholder names and data. Need more help with drawing up a capitalization table? Get in touch with us!