Customer Acquisition Cost, or CAC, is a metric commonly used to analyze the total cost of acquiring a new customer, considering the resources and costs associated with all elements of the acquisition process.
The basic formula used to calculate the Customer Acquisition Cost is:
This metric helps you to know if your investments are good for your business and if you are making the right decisions. Understanding it will help you to improve your marketing strategies and the profitability of your company.
To know if an investment will benefit the business, you can look at CAC while also looking at Customer Lifetime Value (LTV), which represents the revenue you get from a customer during the time they are connected to your business. This helps you understand if the customer contributes to your business more than what they cost to it.
Exhibit – The relationship between CAC and LTV
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