Why Mike Duboe Questions LTV-to-CAC Ratios

In this 2023 conversation, investor and former growth leader Mike Duboe explains to Harry Stebbings why he is cautious about relying on a customer lifetime value to acquisition cost ratio. His remarks are business analysis, not investment advice.

First, young companies rarely know a customer’s true lifetime. Duboe asks how a two-year-old company can confidently assume a five-year customer lifetime without enough evidence.

Second, a blended ratio can hide differences between acquisition channels, search terms and audiences. Customers acquired through different routes may have very different economics.

Duboe prefers examining payback periods: how long gross margin from acquired customers takes to recover acquisition spending. He recommends matching paid acquisition costs to the relevant paid customers and improving granularity as data permits.

For example, search terms reflecting different purchasing intent can warrant different acquisition-cost thresholds. Segment-level estimates still depend on data quality, attribution and assumptions.

He recalls Bill Gurley’s warning that an LTV formula is a tool, not a strategy. A formula should not be used merely to justify ever larger marketing budgets.

Duboe adds that understanding customer psychology and producing effective creative work can matter more than mechanical optimization of a single metric.