The StitchCrew Guide to Finances: The 3 Assumptions That Matter Most

If you try to focus on every number in your business at once, you will absolutely make yourself miserable. The good news is, you don't have to. Some assumptions carry a lot more weight than others, which means a few of them can tell you a whole lot about how money is actually moving through the business. They can help you understand whether growth is getting too expensive, whether customers are worth enough to justify the effort, and whether there is actually enough left over after a sale to keep the business healthy.

Once you know where to focus, the numbers start to feel a lot less random and a lot more useful.

Start With the Assumptions That Matter Most

Although it can be said that every business is a little different, the truth is most businesses still have to sell something to a customer at a price higher than what they paid. That simple reality points back to a few assumptions that can tell us a whole lot about how the business is really working.

• Customer Acquisition Cost (CAC) tells you how much it costs to bring in one paying customer. If you’re spending money on ads, events, outreach, content, sales support, or anything else to get in front of customers, this helps you understand whether that effort is actually paying off. Growth is great, but not if every new customer is costing you more than they’re worth. CAC is an incredibly important number for businesses that rely on marketing (not direct sales) to drive growth. 

• Lifetime Value (LTV) is the total amount a customer is likely to spend with your business over a given time frame. This helps you look beyond just the first transaction. A customer who buys once may be valuable, but a customer who keeps coming back is often worth much more.

  
  

• Cost of Goods Sold (COGS) is the direct cost of delivering your product or service. For product-based businesses that might include materials, packaging, or production costs. For service-based businesses it could include labor, contractor support, or anything directly tied to getting the work done. revenue can look exciting, but revenue by itself does not tell you much. What really matters is how much money is left after the sale is delivered.

  
  

  Gross Profit per Sale = Sale Price - Direct Cost per Sale

When we’ve done this mystical math we can determine things like how much revenue we’ll generate and how much margin will be left over to pay for operational expenses like salaries, rent, and those snacks in the break room. 

How Much Are You Paying for Growth?

Customer Acquisition Cost tells you how much it costs to bring in one paying customer. That’s the simple version.

The slightly more annoying version is that people love to make this sound more confusing than it needs to be. They’ll ask things like, “Does that mean a lead? A trial? A signup? A paying customer?” And the answer is, it depends on what you’re trying to measure. But for our purposes here, let’s keep it focused on the thing we actually care about. What does it cost to acquire a paying customer. 

Let's go back to our website traffic example. We assumed a $1,000 marketing budget would drive 2,000 visitors, and that 3% of those visitors would convert into 60 paying customers. Now we get to the math that tells us whether this growth is impressive or expensive.

CAC = Total Acquisition Spend / Number of New Customers Acquired

That means it cost you $16.67 to bring in each paying customer. Simple enough. But what this number is really telling you is how expensive growth is.

When someone asks, “What’s your CAC?” what they're usually trying to figure out is whether you're spending way too much to get customers in the door. If it costs you $16 to get a customer, but the product you sell only brings in $9, that is... not ideal. Your CAC directly affects how much room you have to grow. If your cost to get a customer is reasonable, you can usually keep investing in marketing, sales, outreach, or whatever growth channel is working. But if that number starts creeping too high, growth gets expensive fast.

A high CAC can be a warning sign, but it can also mean there are more steps in the buying process than you first accounted for. Maybe someone joins your email list before they buy. Maybe they book a call, start a trial, or disappear for three weeks and then come back like nothing happened. That’s exactly why it helps to build enough assumptions to track how people actually move toward becoming paying customers.

Looking Beyond the First Purchase

Now that we have an idea of what it costs to get a customer, the next question is how much is that customer actually worth?

That is where the Lifetime Value comes in. Measuring the LTV forces you to stop looking at a customer like they only exist for one transaction. That first sale might get your attention, but it rarely tells you the whole story.

Talking about “lifetime” value can feel a little dramatic if your business is still new and you barely know what next month looks like. Fair. But this is still one of the most important assumptions in the business, because it shapes how much room you have to grow. If a customer only buys from you once, there is only so much you can afford to spend to get them. But if they come back and buy again, that gives you a lot more room to work with.

To get there, we really only need to know two things:

• Average Order Value (AOV) is the average amount a customer spends each time they buy. This gives us a cleaner starting point than trying to guess every possible order size, because now we have one number that represents what a typical purchase tends to look like. Total Revenue ÷ Total Orders

• Recurrence is the number of times a customer comes back and buys again within the time period you are using. So if you think the average customer will buy from you 4 times in a year, then your recurrence is 4. And no, that does not mean every customer behaves the same way. What we care about here is the average.

Once we have those two pieces, we can estimate Lifetime Value pretty easily. Let’s keep rolling with the same example. Let’s say the average order value is $20 each time they buy, and over the course of a year they come back 4 times.

LTV = Average Order Value × Recurrence

That gives us an estimated LTV of $80. That number helps us understand how much a customer may actually be worth to the business over time, not just on one day. And the higher that value goes, the more room you usually have to absorb the cost of acquiring that customer in the first place.

Spending can, and will, change over time. You can always go back and update your assumptions as you learn more about how customers actually behave. And “lifetime” doesn't have to mean forever, either. It can mean a month, a year, or whatever stretch of time makes the most sense for your business. That’s also what makes recurrence so important. The moment that number goes up, the value of each customer can go up fast too. And that can change a whole lot about how much room the business has to grow.

Where Revenue Meets Reality

So far, the numbers have been pointing us toward growth. Now we have to look at the part that brings us back down to earth a little, what it costs to actually deliver what we sold.

Revenue can look exciting, but revenue by itself does not tell you much. What matters is how much money is left after the sale is delivered. That’s where knowing your Cost of Goods Sold comes in. One of the most useful things COGS does is force you to stop lumping every business expense into one messy pile and start separating your costs into two buckets.

• Dynamic costs increase as sales increase. If you sell more products, you usually need more materials, more packaging, more shipping, or more labor tied directly to fulfillment. Those costs move with the sale.

  
  

• Fixed costs mostly stay the same whether sales are high or low. Rent is still rent. Your software subscriptions are still your software subscriptions. The electricity bill is still going to show up whether you made five sales or fifty.

That split matters because more sales do not just mean more revenue. They often mean more cost, too. And if you do not know which costs move with the sale, it gets a whole lot harder to understand what growth is actually doing for the business. Now, before we can plug our COGS into the math, it helps to clear up a few of the questions that usually come up here.

• What if my business doesn't really have much COGS?

  Not every business has a big direct cost attached to each sale. That may be true for software, digital products, or service businesses where the main cost is not changing much with each individual sale. If that is the case, CAC and LTV may end up doing more of the heavy lifting in your model.

  
  

• Are people and staff considered COGS?

  Sometimes. If you have to pay people directly to deliver the product or service, then yes, that labor may be part of your COGS. Most consulting businesses work this way because the “product” is literally the staff. But if the payroll stays the same whether you sell more or not, then it belongs more in your fixed costs than in the per-sale cost we are trying to measure here.

  
  

• Is marketing considered COGS?

  Nope. Marketing helps bring customers in, but it is separate from the cost of delivering what they bought. COGS only comes into play when we actually sell something... or get stuck with inventory.

  
  

• If I buy inventory in bulk, do I look at the full cost or the per-unit cost?

  For this kind of forecasting, think about it on a per-unit basis. The question we are trying to answer here is not just “What did I spend?” It is “What did this specific sale cost me?”

If your business doesn't fit perfectly into one of these examples, don’t panic. The point of all this assumption-building is to create a forecasting framework you can actually use, not to stress over whether every line item is sitting in the world’s most perfect category. Let the tax return have that level of drama.

So let’s go back to our website traffic example and find out how much of that sale we actually get to keep. If our average order value is $20, and we figured our direct cost per sale to be $8, then we can figure out how much is left after each purchase.

Gross Profit per Sale = AOV - Direct Cost per Sale

That leaves us with on average about $12 after each sale. That $12 is what's left over before we start paying for everything else in the business, rent, software, salaries, and all the other expenses hanging around in the background. And once we know that number, we can take it one step further. If our example gave us 60 paying customers, and each sale leaves $12 behind, then:

Total Gross Profit = Gross Profit per Sale × Number of Sales

That means after delivering all 60 sales, we would have $720 left over to put toward the rest of the business. Now, this is still assumption-based, but that is also what makes it useful. The more accurately you can estimate the direct cost of each sale, the easier it becomes to see what is really left over and whether your pricing is doing the job it needs to do.

Putting These Assumptions to Work

None of these assumptions need to be perfect to be useful. You'll almost certainly revise your CAC. You will definitely learn more about LTV over time. And there is a very real chance your COGS looked a little too optimistic the first time around. That’s normal. What matters is getting your assumptions clear enough to use. Once that happens, the numbers start pulling their weight and giving you a forecasting framework you can make decisions from.