Episode 39: Budget, ROI, CAC and customer lifetime value
Beyond ROAS: finding out with ROI, CAC, customer lifetime value and the LTV:CAC ratio whether marketing really makes a profit.
Neha was happy to see a ROAS of 3.84x. Then her CA asked: “After marketing, how much is actually left?”
Revenue is vanity, profit is sanity. Today we do the real maths.
The full cost of marketing
Not just ad spend. StyleStreet’s total marketing cost in month 3:
| Item | Amount |
|---|---|
| Meta Ads | ₹10,000 |
| Content (shoot, props, editing) | ₹3,000 |
| Influencers / creators | ₹2,000 |
| Total | ₹15,000 |
Add tools, freelancer fees and commissions if there are any. And Neha’s own time is a cost too.
ROI: how much did marketing earn?
(Profit from marketing − marketing cost) ÷ marketing cost × 100
- 60 orders × ₹960 = ₹57,600 revenue
- Profit before marketing ~₹411/order × 60 = ₹24,660
- Marketing cost = ₹15,000
- Net = ₹24,660 − ₹15,000 = ₹9,660
- ROI = 9,660 ÷ 15,000 × 100 = ~64%
ROAS 3.84x sounds like “4 times!”, but the real return is 64%. Still good, but realistic.
CAC: what does one new customer cost?
Total marketing cost ÷ new customers
Of month 3’s 60 orders, 50 were new customers and 10 were repeat.
CAC = ₹15,000 ÷ 50 = ₹300
CPA (Chapter 35) was one ad’s cost per purchase. CAC is all of marketing’s cost per new customer. For the business, CAC tells the truer story.
CLV: a customer’s full value
How much profit one customer brings over the whole relationship.
A simple formula: profit per order × average orders per customer (in a year)
- Profit/order ~₹411
- After the repeat rate rose, average ~1.8 orders/year (an estimate)
- CLV ≈ ₹411 × 1.8 ≈ ₹740
The LTV:CAC ratio and budget decisions
LTV:CAC = ₹740 ÷ ₹300 ≈ 2.5
- < 1: a loss on every customer
- ~1–2: thin margin, be careful
- ~3: generally considered healthy
- Very high: you may be under-investing in growth
Two ways for StyleStreet to reach 3: lower CAC (organic, partners, CRO) or raise LTV (retention, bundles).
StyleStreet’s real problem
Revenue grew, the bank balance didn’t
One month Neha raised ads to ₹25,000 (“ROAS is 3x, put in more!”). Revenue grew, but:
- At scale, ROAS fell from 3.84x to 2.4x
- By the margin, break-even is ~2.3x (Chapter 35)
- At month end, profit was almost zero
Looking at ROI and CAC alongside ROAS would have shown it.
Practical example: Month 3 P&L view (marketing)
| Line | Amount |
|---|---|
| Revenue (60 orders) | ₹57,600 |
| Product + shipping + fees | − ₹32,940 |
| Profit before marketing | ₹24,660 |
| Marketing | − ₹15,000 |
| Net (after marketing) | ₹9,660 |
Fixed costs like rent and salary are separate. This only shows how much marketing brought in after covering its own cost.
Your mission: Build a unit economics sheet
For StyleStreet or any business:
- List every line of total marketing cost
- Calculate ROI
- Calculate CAC (counting new customers separately)
- Estimate CLV (profit/order × orders/year)
- Work out the LTV:CAC ratio and interpret it
- Write 2 ideas to lower CAC and 2 to raise LTV
Quiz
-
Marketing cost ₹15,000, 50 new customers. CAC?
- A. ₹150
- B. ₹300
- C. ₹750
- D. ₹50
Show answer
Correct answer: B. ₹300
15,000 ÷ 50 = ₹300
-
The difference between ROAS and ROI?
- A. The same
- B. ROAS is about revenue, ROI about profit
- C. ROI is only for SEO
- D. ROAS is only for Google
Show answer
Correct answer: B. ROAS is about revenue, ROI about profit
That’s why ROI can be low even with a high ROAS.
-
What does an LTV:CAC ratio of 0.8 mean?
- A. Very good
- B. A loss on every new customer
- C. Break-even
- D. Nothing
Show answer
Correct answer: B. A loss on every new customer
Getting a customer costs more than the customer brings.
-
A way to raise LTV?
- A. Stop ads
- B. Retention, repeat purchases, bundles
- C. Lower prices
- D. Buy followers
Show answer
Correct answer: B. Retention, repeat purchases, bundles
The more often and the more a customer buys, the higher the LTV.
Output for the client project
Your project file now has a Unit Economics Sheet:
- Total marketing cost ₹15,000
- ROI ~64% · CAC ₹300 · CLV ~₹740 · LTV:CAC ~2.5
- Month 3 marketing P&L
- CAC ↓ / LTV ↑ action list
Golden rule: Revenue is vanity, profit is sanity. Don’t chase ROAS; use CAC, LTV and ROI to find out what you truly earned.