Thoughts on CAC, LTV, Fees and Metrics

Everytime you point out CAC, LTV, Fees or another monetary metrics. Very crypto-aligned ideological die arduous folks will battle again in opposition to you that we shouldn’t encourage that line of considering as a result of it’s “evil” and “capitalistic” just like the “web2 world of Silicon Valley”.

That is so improper and misguided on so many ranges. I’ll clarify why.

Let’s think about for a second moderately than constructing blockchains and blockchain primarily based apps, we’re constructing a brand new web native society. On this society/civilisation, every handle is a citizen.

Now we all know every citizen is completely different and subscribes to completely different values for current. Some consider that farming and dumping tokens is totally okay since these are the principles of the protocol, others consider in holding and being lively members within the networks they’ve a monetary stake in.

After we speak about CAC (price of buying a buyer), actually what we’re saying is:

  • Given how a lot worth the product intrinsically has, how a lot cash do I have to spent to speak that worth to a buyer. If the product is nice and has a superb model/advertising, its CAC prices will scale back over time. If its new and nonetheless has to show worth it’ll have larger CAC prices (perhaps within the type of the CEO doing all handbook outreach to onboard prospects).

There’s nothing Silicon Valley or improper about this framing, it merely displays the matter of reality of actuality. Now once we relate it within the context of addresses, all we’re saying is how a lot $ does this protocol have to spend to bridge the worth it at the moment has versus how a lot further is required to speak that to the precise addresses. If we will’t measure this, how do we all know what’s actually worth additive versus what isn’t? CAC prices are a mirrored image of worth created in actuality.

Let’s speak about LTV and Fees Paid. That is one which additionally will get a foul “moral” rep as a result of crypto is all about “cutting out the middle-man and making no money in the process” to sure courses of individuals. This simply feels flat out improper and wishful considering. The purpose of crypto is to take away extractive, worth destroying middle-men and exchange it with environment friendly code. There’s nothing improper in capturing worth that will get created. Anybody who believes so ought to ship their crypto to 0x0 to face by their perception. There’s one other particular property about charges and LTV that isn’t talked about sufficient: It’s not game-able because it prices a consumer.

It’s the entire cause why price markets exist in Layer 1s! Everytime you introduce some type of price it means the consumer has to suppose whether or not they suppose the service of product is sweet sufficient for them to spend their vitality (time/cash) on it. Equally, should you cost no charges in your product, how are you aware if folks truly worth it? As a logical step, should you don’t know the way a lot your customers have paid in charges for the reason that starting of time, how are you aware which of them worth your service probably the most? As a by-product query, how are you aware the place to spend capital to retain these customers and appeal to ones just like their traits? The reply is you possibly can’t! You’re flying blind.

Pulling all of this collectively, over time as soon as you possibly can quantify CAC and LTV for addresses so much simpler, you possibly can then begin to perceive:

Realizing these two issues will allow way more smarter and much less ponzi-like incentives which might be at the moment prevalent within the house. Addresses that don’t require so much to attempt new issues and will stick round for those which might be good will accrue extra rewards than those who require numerous capital to attempt one thing new and pay the least in charges (airdrop hunters). What we’re actually speaking about at a better order abstraction is handle primarily based repute and the bettering the incentives for enjoying long run video games moderately than brief time period extractive ones.

In case you’re nonetheless on the fence, I’d ask you what the choice is? Treating addresses that don’t have any historical past the identical as these which have been long run ecosystem members? Would you actually pay the identical for Vitalik to make use of your product versus 1 of 5000 airdrop hunter addresses? Ask your self that and you’ll discover the reality.

It’s going to be attention-grabbing as on-chain repute turns into extra actual within the coming months and years and finally, quantified by way of monetary metrics.

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