How does churn relate to the VC’s magic number metric?
i) How does churn relate to the VC’s magic number metric? Why are VCs concerned about the
magic number and not focused on customer lifetime value and the LTV/CAC ratio? How do
these metrics differ?
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Order Paper NowFollowing are the two ways CLV/LTV and CAC can relate
CLV = (m * L) – CAC OR CLV = (m/CR) – CAC
m = contribution margin generated from a customer in a year
L= expected purchasing life of a customer
CAC = upfront cost of acquiring a customer
Magic Number = (Change in revenues between this quarter and the prior quarter) * 4
Marketing expenditures in the prior quarter
VC’s usually like to see a magic number of .75 and above preferably more than 1.
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