Financial concepts — sometimes complicated — can be a nightmare for businesses of all sizes. Everything from iff in gst to preparing the profit and loss statement can be intimidating especially for a new entrepreneur. This is why it’s so important to keep up with them. Even though it seems like understanding them is not of any real importance, it’s actually vital to the growth of your business. But you don’t have to worry anymore because we’re going to show you some important financial concepts as an entrepreneur you should know.
1. Customer lifetime value
Customer lifetime value (CLV) is a measure of the total value a customer provides to a company over a product’s entire lifespan. which is important to take into account when using construction takeoff services. It’s essential to recognize that CLV doesn’t just apply to one customer, but rather to every satisfied customer who buys from you. Lifetime value (LTV) is commonly used to calculate the profitability of a given customer.
CLV is determined by calculating the average revenue per user (ARPU) from all customers who have bought from you in the past year and then multiplying that number by the number of customers who have reached the end of their life with your product or service.
For example: if your ARPU was 10 per month, and you had 100 users that had been with you for more than one year, then your CLV would be 10 times 100 divided by 1,000 times 100 or 10 per user.
2. Customer acquisition cost
Customer acquisition cost (CAC) is the cost of acquiring a new customer in a given period. CAC is also referred to as customer acquisition expense (CAE).
This is usually the most expensive part of marketing, as it involves paying money to get new customers. Acquisition cost could mean two things:
Customer acquisition cost – The total amount paid by a company to acquire new customers. This includes marketing expenses, such as advertising and sales promotion costs.
Customer acquisition cost rate – The ratio of customer acquisition costs to revenues of an M&A firm, which can be used to determine whether a firm’s customer acquisition costs are acceptable.
Customer acquisition costs can be measured in different ways, including marketing expenses, customer acquisition costs, and direct sales costs. Marketing expenses include advertising, promotions and any other promotional activities that are intended to bring new customers into your business. Customer acquisition costs include all of these marketing costs as well as any other direct sales costs that are incurred in order to acquire new customers. Typical examples include salaries for salespeople or salaries for independent contractors hired by your company to sell products or services on your behalf.
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3. Return on investment
Return on investment (ROI) is a financial metric used to evaluate the success of an investment. It refers to the ratio between the profit earned by an investment and the amount invested in it.
The formula for calculating ROI is: Profit / Investment
Profit is the difference between revenue and expenses. Revenue is the value of a product or service sold minus all costs associated with that sale. Costs include direct costs, such as wages, production costs, and marketing expenses; indirect costs, such as depreciation on equipment; and opportunity costs, including transaction fees paid to suppliers or other parties who are not on your payroll but who have supplied you with products or services.
Investment can be either cash outlay or equity capital invested in a business organization. Cash outlay refers to money spent on tangible assets that result in an increase in revenue (such as buildings), whereas equity capital refers to money invested by shareholders in a business organization that increases their ownership interest in the company (such as stocks).
Clearly managing the finances of a business involves a lot more than accumulating gst registration documents and getting a gst number. We hope this article is the beginning for a long journey of learning the financial aspects of your business.
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