Stop focusing on LTV to CAC: It’s a terrible metric for subscription apps

In evaluating the financial metrics of consumer subscription app businesses, the traditional focus on Lifetime Value to Customer Acquisition Cost (LTV:CAC) is critiqued for its inadequacy in capturing the true dynamics of customer value and acquisition costs. The challenges in accurately determining Customer Lifetime and Lifetime Value due to factors like seasonal usage and temporary churn are highlighted, suggesting that periodic snapshots of Average Revenue Per Paying User (ARPPU) provide a more realistic assessment of customer value over time. By capturing ARPPU at key conversion and renewal intervals, businesses can better observe shifts in customer value, identify trends, and make informed decisions about marketing budgets and cohort behaviors. This approach also aids in understanding the payback period and gross contribution after CAC, enabling businesses to monitor profitability and the overall health of their subscription model through a more nuanced lens, as opposed to relying solely on the LTV:CAC metric.