In the fast-paced world of startups and SMEs, hyper-growth is the ultimate goal. Everyone wants to scale quickly, grab market share, and attract investor attention. But in the race to success, a critical question often gets overlooked: Is this growth sustainable?
Take the example of startups that pour millions into acquiring users without focusing on whether these users will stick around or contribute meaningfully to revenue. High customer acquisition cost (CAC) with low customer lifetime value (LTV) leads to diminishing returns, and before you know it, the growth curve flattens.
The truth is that growth at all costs can lead to short-lived success. Without healthy unit economics, even the fastest-growing startup can crash and burn. The challenge lies in finding that sweet spot where hyper-growth and financial health coexist.
Let’s explore how to strike that balance.
Expanding the Unit Economics Checklist
In addition to CAC and LTV, factoring in the CTS—the ongoing costs incurred to retain and engage customers—is crucial. This includes:
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Retargeting efforts (ads, email marketing, push notifications)
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Customer support and operational costs (e.g., handling queries, refunds)
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Fulfillment and logistics, particularly for e-commerce or subscription services
When you combine CAC and CTS, you get a clearer picture of your true customer acquisition and retention costs. Hence, we can simplify the formula to: LTV > CAC + CTS.
For example, a business that spends $5 to acquire a customer and $5 on retargeting to drive repeat purchases throughout the customer’s lifetime, should consider a total cost of more than $10 when calculating profitability/unit economics.
Striking the Balance
So how do you scale without tipping the scales against your unit economics? Here are some actionable tips:
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Experiment with Scalable Channels
Instead of going all-in on expensive ad campaigns, explore organic growth channels like referral programmes, content marketing, and partnerships. These are often more cost-effective and deliver high-quality leads, ultimately allowing you to establish a healthy channel mix that lands on the costs defined for sustainable growth. -
Establish Your Source of Truth
Scaling growth channels without a proper attribution model that feeds your data analytics with the correct contribution and cost of each channel is like driving at Le Mans on a rainy night with no headlights (I’m a petrolhead)! There are different attribution models to choose from. My advice is always to start “last click,” building your way to “data-driven” which is more advanced, showing the channels’ fractional contribution in each order instead of affiliating the order to only one channel. -
Invest in Retention, Not Just Acquisition
Acquiring a new customer is 5x more expensive than retaining an existing one. Imagine a small e-commerce brand focusing on niche products. Instead of burning cash on broad-target ads, they double down on retaining their core customers through targeted email marketing and exclusive discounts. Over a year, their LTV triples while CAC decreases by 20%. This approach sets them on a sustainable growth trajectory. Hence, it’s best to focus on delivering exceptional experiences that keep customers coming back. Think loyalty programmes, personalised offers, and robust customer support. -
Leverage Predictive Analytics
Use data-driven tools to understand your customer journey, predict LTV, and identify low-cost acquisition channels. Tools like AI-driven CRM systems can help fine-tune your approach. -
Build A Winning Team
Having the right team and the right marketing organisation is essential to succeed. Build a team that values experimentation, always challenges the status quo, reads analytics like an interesting story, and is hungry to learn—the business is always evolving with new tools and channels that require constant learning and development.
Building for the Long Game
Healthy unit economics does more than just keep your business afloat—it makes your startup attractive to long-term investors. Venture capitalists increasingly look for profitability alongside growth. If your numbers prove that you can grow sustainably, you’ll have an edge.
However, sustainable growth also requires adaptability. Market conditions change, and so should your strategies. Whether it’s pivoting to a new audience or reevaluating your pricing model, staying flexible ensures that your growth aligns with your financial goals.
To conclude, growth is a marathon, not a sprint. By prioritising retention, keeping a close eye on your unit economics, and investing in scalable strategies, you can achieve hyper-growth without sacrificing financial health.
So, ask yourself: What’s one step I can take today to make my growth healthier?
The journey to sustainable success starts with finding your balance.
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