Customer Acquisition Cost (CAC)
Lower is better
How is Customer Acquisition Cost (CAC) calculated?
To calculate customer acquisition cost take the cost of all your marketing efforts within a given period of time and subtract that from the cost of all your sales efforts within the same period of time. Divide the result by the total number of customers acquired within that time period to arrive at your customer acquisition cost.
What should be included in the cost of your sales efforts?
What should be included in the cost of your marketing efforts?
What is Customer Acquisition Cost (CAC)?
Customer Acquisition Cost is a metric that helps inform how efficiently your business is acquiring new customers. It's often used in conjunction with LTV and time to break-even to get a holistic view of your operating efficiency. To ensure that your business is operating efficiently, you'll want your CAC to be 1/3 of what your current LTV is. If your CAC is too high, the profitability of your business will not be able to sustain long-term growth.
How can you reduce your Customer Acquisition Cost (CAC)?
Why is Customer Acquisition Cost (CAC) important?
Start tracking your Customer Acquisition Cost (CAC)
Create a KPI for Customer Acquisition Cost (CAC) to monitor it over time and an OKR to track your impact against it in Commonality.
Lifetime Value (LTV)
Ensure that you're delivering value that customers are willing to pay for by measuring the average revenue that a customer will generate throughout their lifespan as a customer.
Lifetime Value to Customer Acquisition Cost (LTV/CAC)
Measure this leading indicator of prediciting future growth, customer profitability, and the efficiency of your sales and marketing efforts.
Customer Churn Rate
Measure the number of subscribers that unsubscribed or stopped paying in a given period of time.
Time to Break Even
Make informed decisions about operating your business by measuring the time it takes for your revenues to match your operating expenses for a customer or product.