How To Scale Your DTC Channel Sustainably With Unit Economics

Want to scale your DTC channel sustainably? Use Customer Unit Economics to analyse costs & identify growth opportunities.

Keep reading to learn more about this essential perspective for eCommerce success. 👉

Understanding customer unit economics is crucial for any eCommerce business to determine if they need to spend more money to acquire new customers.

Two key metrics that are used to measure customer unit economics are customer acquisition cost (CAC) and customer lifetime value (CLV or LTV).

CAC represents how much it costs to acquire a new customer, while LTV measures the income generated by a customer over their lifetime with the business.

To calculate CAC, take your total marketing costs over a specific period of time and divide that by the number of new customers you acquired.

LTV is a little more complex to calculate. One way to do it is to take the average value of a customer’s purchase and multiply it by the average number of purchases they make in a given time frame (such as a year).

The LTV:CAC ratio is like a compass for eCommerce businesses – it tells you whether you’re headed in the right direction and acquiring new customers profitably.

LTV > CAC = keep moving forward LTV = CAC = time to reassess your strategy LTV < CAC = stop and take urgent action!

Customer unit economics are not a new concept but unfortunately, many eCommerce teams struggle with calculating these metrics or fail to pay attention to them.

This can hinder their ability to make informed decisions. However, by focusing on CAC and LTV, businesses can answer important questions such as:

• Am I acquiring new customers profitably?
• How much can I spend while remaining profitable?
• What impact do different marketing channels have on my LTV:CAC ratio?

This allows eCommerce teams to develop clear objectives such as reduce/maintain CAC whilst increasing LTV.

Why not check out the rest of our Customer Unit Economics series to find out more about CAC and LTV?