How to calculate CAC and LTV when your company is young

Pick a period long enough to contain a decent number of new customers. A month if you are signing dozens, a quarter if you are signing a handful.

Add up every naira that went into winning customers in that period. Advertising. The share of anyone's salary that went into selling or marketing. Commissions and referral payments. Tools bought for the purpose. Travel to see prospects. Then divide by the number of customers who actually started paying in that period.

Two traps. The first is counting only the advertising, which understates the real cost by a wide margin in a founder-sold business. The second is dividing by signups rather than by paying customers, which is a different and much flattering number.

Founder time is the largest hidden cost in almost every early Nigerian startup, and leaving it out produces a CAC that cannot survive a hire.

Put a rate on it. Not what you pay yourself, which may be nothing, but what you would have to pay someone to do the same work. If a competent salesperson for your market would cost ₦400,000 a month, and you spend half your time selling, that is ₦200,000 a month going into CAC.

Then say so in the deck. "CAC is ₦40,000, of which ₦26,000 is founder time costed at market rate" is a sentence that tells an investor you understand your own economics.

Start with what a customer pays you in a month. Subtract what it costs to serve them for that month: hosting, payment processing fees, support time, any cost of goods. What is left is monthly gross profit, and that is the only figure that belongs in an LTV calculation.

Then multiply by the number of months an average customer stays. This is where young companies get stuck, and the honest answer is often that you do not know yet.

If you have been trading for eight months, you cannot claim a three-year customer lifetime. Any investor doing arithmetic will spot it in seconds.

There are two honest options. Report LTV over the period you actually have, and say so: "gross profit per customer over their first eight months is ₦96,000, and we do not yet know the full lifetime." Or use your observed monthly churn to estimate lifetime as one divided by the churn rate, and label it as an estimate from a short window.

Both are stronger than a confident number. An investor at this stage is not expecting certainty. They are testing whether you can tell the difference between what you measured and what you hope.

Three to one is the ratio most investors carry in their head as healthy: each customer eventually returns three times what it cost to win them. Below one to one, every new customer makes the company poorer.

But when cash is tight, payback period matters more than the ratio. Divide CAC by monthly gross profit to get the number of months before your money comes back and can be spent again. A company with nine months of runway and a fourteen-month payback cannot fund its own growth, and that is a constraint worth stating out loud rather than hoping goes unnoticed.

If you earn in naira and pay for anything significant in dollars, hosting and advertising being the usual culprits, then your CAC moves with the exchange rate whether or not anything in the business changes.

State the currency next to every figure and say which month's rate you used. GTM stores every money field in minor units beside an explicit currency, and never converts between currencies to compare them, because a comparison at an invented rate is a made-up number wearing a decimal point.

• CAC (customer acquisition cost) — What it costs you, all in, to win one paying customer.
• LTV (lifetime value) — The total gross profit one customer produces before they leave.
• LTV to CAC ratio — How many naira of lifetime value each naira of acquisition buys.
• CAC payback period — How many months a customer takes to repay what you spent winning them.
• Churn — The share of customers, or of revenue, that leaves in a period.

This guide is general information about how investors read a business and how to present one. It is not investment advice, not legal advice, and not tax advice. For anything specific to your company, take professional advice from someone who knows your situation.