Business Owners: Only Two Numbers Matter Ross | December 7th, 2011

Howard Morgan, the Managing Partner of First Round Capital has a simple and practical view on evaluating Internet-based businesses:

If you have a business that’s based around the internet, basically only two numbers we need to know: What’s the cost to acquire a customer? What’s the lifetime customer value? If the lifetime customer value is higher the than cost to acquire, you’ve got a business. If it isn’t, you don’t.

All business owners – and not only those building Internet-based businesses – should follow this advice. Here’s Howard Morgan’s short video on this subject.

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  • Paul

    I respect the guy and he has is pretty much spot on. In the interest of your readers though a little more… it wouldn’t be as catchy of an article if it was “the only 4 numbers that matter” because there are a couple more:

    - # of new customers acquired each month. You can have a great Cost to Acquire but if you can’t acquire them, well then…

    - Gross marginal Costs or conversely, COGS. Granted, for web businesses, the marginal costs are typically low, so we can probably ditch this one. And if LTV is including COGS and/or overhead already and is really meant as incremental lifetime net profits discounted back, well then, he’s spot on.

  • http://twitter.com/Biquitous Biquitous

    Hey guys:

    First off this was an amazing video, and I have since passed it along to all of my readers and followers of my social media channels.

    Problem: When I try and share this very valuable post, your social graph data is done so poorly, that when the social channels try and pick up an image, title and description, it is not working properly, looks terrible and reads even worse.

    You are doing a serious disservice to a great post, website and blog especially when someone like me tries to purposefully share it with others!

    You should have your web team look into fixing this IMMEDIATELY!

    If you have questions about how exactly to do that, or what I am talking about, please contact me privately, and we can talk about it, you can follow my firm @Biquitous on Twitter, and we can private message from there.

    In the mean time, please keep up the great work!

    Chris

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