How do you calculate Customer Acquisition Cost (CAC)?

joshua-rawson-harris-602330-unsplashCAC stands for Customer Acquisition Cost and is usually compared to a customers LTV (Life-Time Value for a customer) to understand if a particular acquisition tactic was profitable.

Not to be confused with ROAS (Return On Ad Spend which only includes, as the name implies, ad spend), CAC represents all marketing costs involved with an initiative such as: wages, software costs, overhead, etc – divided by the number of acquired customers. It should be noted that ROAS is a lot easier to measure than LTV:CAC.

An LTV:CAC ratio of less than or equal to one is not good. It means you are losing money with each customer. Some schools of thought feel that a 3:1 LTV:CAC ratio is good. Any higher, you may not be spending enough.

About Rommil Santiago

A Toronto-based growth marketer looking to improve the world.
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