How to Get More Customers Without Wasting Money

Tired of spending on sales and marketing without seeing real results? In this video, Steve reveals the one metric that shows whether you're scaling profitably—or just burning cash.

You’ll learn how to track and improve this critical number so you can attract more customers, grow sustainably, and stop wasting money on what doesn’t work. If you want to scale smarter, not harder, this is a must-watch.

TRANSCRIPT:

If you're building a business and you want to know whether your sales and marketing function is working, you've come to the right place because I'm going to explain the most important metric you need to understand in your business. My name is Steve Coughran. I'm the founder of Coltivar.

I've spent my entire career turning around and growing businesses, generating over a billion dollars in value in the process. And on this channel, I help business owners and leaders to understand what cashflow is so they can get more of it and make their businesses more valuable. Let's go ahead and jump right in.

When it comes to sales and marketing, this is the ratio of all ratios. It's LTGP to CAC. Say what? What is LTGP? Well, I'm going to explain.

Let's start with this side of the equation, then I'll break down CAC. All right. LTGP stands for lifetime gross profit of a customer.

Here's how to find it. If you take the income statement and you look at revenue, this represents all the sales of your business, all the income that comes from selling your products and services. You take COGS, your cost of goods sold, all the costs associated with fulfilling your products and services.

And you take revenue minus cost of goods sold. Guess what? You arrive at gross profit. All right.

Let's keep going down the line here so you can understand how the income statement flows. Next, we have OPX, which is just short for operating expense. And under OPX, there's really three categories.

We have sales and marketing. I'm going to abbreviate here. Next, we have general and administrative expenses.

And then finally, we have research and development. You add all these three together and you get OPX, your operating expense. That's the same as overhead, SG&A, fixed costs, same thing.

So we take gross profit minus OPX and we arrive at EBITDA. Such a nerdy term, but just simply it means profit. All right.

That's how the income statement breaks down. Generally speaking, I'm keeping it really high level and I'm tying it back to EBITDA. There's some other things in here, some other nuances, but that's for another video in itself.

All right. LTGP. Let's do this side first.

Like I said, lifetime gross profit. So how do you calculate this? If you come over here to your income statement and you take gross profit, and let's just say this number is 100 G's. Okay.

And let's also say you have 100 customers. Well, if you just take $100,000 over this period and then you find the number of customers over the same period and you do the math, right? So this is divided by, you get $1,000 in gross profit per customer. Right? All right.

So you follow me here? Now, here's the thing. What about the LT, the lifetime? How do you calculate that? And that's where it gets a little nuanced and a little tricky. So here's the deal.

If you want to be conservative, then what I would do is I would just say the lifetime is one year. That's going to be the most conservative approach to this. If not, what you could do is you can look at your churn rate and your churn rate will help you to understand how long a customer will stay with your company.

So let's say your churn rate is 10%. That means that you lose 10% of your customers each year. That means you'll cycle through your customers within 10 years.

Right? So that's one approach, or you could just guess or use other pieces of data. And let's just say the lifetime value of your customer is on average three years. That means that the customer is going to stay with you, do business with you for three years.

Then you just take a thousand times three years and bada boom, bada bing. You have an LTGP of $3,000, which is the lifetime gross profit per customer for your company. All right.

What about this other side? Should we do this from Christmas colors? It's not even Christmas, but why not? Okay. We have CAC, which stands for customer acquisition cost. How you calculate this is like you have a customer right here.

This is a customer. And over here, you have a sales team. The sales team is trying to connect with these customers, rope them in.

This is them roping them in like a lasso, bringing them into the company. Now in the process of acquiring customers, the business or the sales person is going to spend money on conferences, events, marketing, advertising, paid ads, printing, all these different things. And therefore all those costs are being recorded down here in sales and marketing.

So to find your CAC, which stands for customer acquisition cost, what you'll do is you'll take this amount right here on the P&L. And let's just say this number is $50,000. All right.

And the important thing is, is you want to include all the costs, everything in sales and marketing. Sometimes companies will include their sales and marketing people and their business development team down here in GNA and payroll. You want to include the payroll up here in sales and marketing.

So you have to extract that out here. If you do include sales and marketing payroll and just your general bucket, it's all your costs, your payroll, your payroll, burden, paid ads, marketing, printing, all this stuff, all the things that go into acquiring customers. All right.

And like I said, let's pretend it's $50,000. Let's also pretend that the business acquired 10 new customers off of this 50,000. So then we're just going to do the math and that equals $5,000 in customer acquisition costs.

That means the business spends $5,000 in order to acquire one new customer. All right. Here's the deal.

In this scenario, you would have an LTGP to CAC of three to five, meaning you spend $5,000 right here to get $3 in profit. And if this was the ratio of your business, you would definitely have a giant sad face because that's terrible. You would never want to spend $5,000 in order to get $3,000 in lifetime gross profit.

But believe it or not, a lot of companies, they do this, and this is why they put in place a marketing budget, but you shouldn't have a marketing budget if this ratio is working, because theoretically, let's just say over here, instead of being $5,000, let's imagine this is $1,000 to acquire a new customer. Then you just do the math, right? $3,000 is your lifetime gross profit. And $1,000 is your customer acquisition costs that would give you a three to one ratio.

That's better. And what that means is that every dollar you spend to acquire a customer, you'll get $3 in gross profit. Now here's the important thing.

This $3 in profit is gross profit. You still have to cover all your op-ex. That's why I say a three to one ratio is the minimum, right? If you're not pulling in a three to one ratio, you're probably breaking even because once you earn gross profit here, you cover your op-ex.

You're not going to have a whole lot left over if it's below three to one. Here's another important thing to understand is that some of the best companies that I work with, they have like 10, even 20 times LTGP to CAC. The ratio is really high.

Now, as your business goes on, let's just say you're at a 10, right? 10 X LTGP to CAC ratio. As the business goes on and you go out there and you acquire new customers, eventually this is going to compress because you're going to hire new people, right? New employees. And these new employees are going to cost more money.

These employees will likely not be as effective as you if you're selling as the owner. That's just the fact of the matter. Sometimes they will be better than you and that's okay.

But also you're going to become more saturated and you're going to start to cannibalize in the market. And therefore this will compress and maybe this compresses down to a three X ratio. That's why you want to be really high because you want to allow for this compression over time.

If you're at three right now and you go hire a team, unless you fix this ratio, it's going to compress below three. And the more people you hire, the more people you bring on, the less effective your sales marketing will be. And potentially you could lose money in the process.

So this is really important to understand. If you want to improve the ratio, let's just say your ratio is terrible. Well, one thing you do is you can increase this, your LTGP.

And how you do that is you improve your gross profit. There's three levers to pull. Number one, you can raise your price.

Number two, you can do more volume or number three, you can be more cost efficient with your cost of goods sold. Those are your three levers to improve gross profit. The last thing is you can improve the LT, the lifetime.

So this includes improving your churn rate. So if you're currently at a 10% churn, reduce that down, be nice to your customers, improve your quality, enhance your customer experience, whatever it may be, get it down to five. Your customers stay longer.

Now, instead of three years, they stayed for six years. This would go up from 3000 to 6,000 and you can see how you would improve the ratio. Customer acquisition costs.

You can improve this by being more effective with your sales marketing. That may include investing in a better brand, investing in a better website, having a better funnel, strengthening your offer. Maybe your offer is not super clear, understanding your ideal customer profile.

So you can close and convert more, getting more referrals. There are a ton of strategies that you could pursue in order to improve your customer acquisition costs. But the big thing I want to leave with you today is just remember the three to one ratio is the minimum.

Now you know how to compute this in your business, start measuring it because what you measure will improve naturally and just go kick some butt. All right. That's what I have for you today.

Leave some comments in the box below. If you have ideas for other videos that you want me to do, if there are topics that are just burning in your heart right now that you want me to cover, drop that down below. So I know what to plan for moving forward.

All right. All the best until next time. Take care of yourself.

Cheers.