Customer Acquisition Cost

Lifetime Customer Value


Market size is the intensity with which all products within a product category, like toothpaste, are bought and used in the economy. Market size is usually measured as total revenue per year, total units sold per year, and total number of active users. Market size values help predict revenue potential, calculate pricing margins required for profit, and grow operations accurately in preparation for future demand. Market size is closely associated with market share, which expresses the fractional values corresponding to a specific business or product.

Market saturation is the reduction of demand that occurs when a durable product fills the world. Full market saturation causes demand to fall toward the rate of expiration; for instance, the fully saturated demand for a 10-year refrigerator is an average of 0.1 per year. A saturated market will experience a major resaturation schedule every time a new product demonstrates innovation of significant value. Such products provide an enormous business opportunity because every existing customer in the market will want to transition to the markedly better product.

Net profit margin is the ratio of profits against total revenue after accounting for all taxes and expenses of the business. The dynamics of the net profit margin help measure the growth relationship between revenue and earnings. The derivation of the net profit margin lends clarity to each variable and fixed cost involved in running the business effectively.

Total investment cost is the full amount of money and time required to bring a business from zero to sustained profits. Sometimes a business may decide to prioritize growth over profits; such a plan is longer and more expensive, but deployed to yield more profit on average over time. Sometimes, rapidly changing industries demand that businesses make major reinvestments to stay relevant and competitive in their respective markets.

Demand validation is the process of checking whether people actually want a given product at the price it is expected to be available. For a new business, demand validation helps measure the interest in a product before extensive time and money are invested into the business. For an existing business, demand validation clarifies the value of potential changes to core business products.

Business stability comprises the risks involved in operating a business over time in a given environment. Cultural shifts may cause demand to move away to different products or recede altogether. The day-to-day operation of the business itself may incur harmful events, such as programming mistakes and machine accidents. Wild external factors may affect different aspects of the business, such as with new government regulations or the bankruptcy of an important supplier.

Innovation frontier is a mental model of the edge of known technologies and their modern applications. The innovation frontier helps gauge business opportunities with respect to the history of business enabling events. Some businesses are enabled by a new or improved technology. Some businesses are enabled by a new combination of existing technologies. Some businesses implement and scale a known combination toward untapped supply or unmet demand.