You have to consider three metrics — gross churn rate, the magic number and gross margin. With these, you can measure the health and profitability of your business. By combining them into a simple equation, you can get your LTV:CAC ratio (long-term customer value to customer acquisition cost), which is a measure of your business’ long-term financial outlook. If the LTV:CAC is over 3, you’re ready to scale [...]

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At this point, it’s natural to ask what values of GCR, MN and GM you should target in order to achieve an LTV:CAC ratio of more than 3. The answer is that it depends on the business.

The table below shows different “magic number” and “gross churn rate” combinations that would generate a TLV:CAC ratio of 3 for a 40% to 80% gross margin business. As expected, a high gross churn requires a very efficient go-to-market (high magic number) to make the business viable.

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