What is CAC (customer acquisition cost)?
CAC (customer acquisition cost) measures the amount of money a company spends to earn the business of a customer. The money spent by businesses to acquire new customers typically involves marketing, advertising, and sales costs, but can also include support costs, production expenses, and more. CAC is calculated by dividing the total amount of money a business spends acquiring new customers by the number of customers acquired.
Comparing CAC to LTV
CAC is a key business metric for both companies and their investors. However, rather than being taken at face value, CAC should always be considered in context with other metrics for a holistic sense of a company’s health. One important metric that is important to track in tandem with CAC is customer lifetime value (LTV). This is particularly crucial for subscription businesses, who have the opportunity to maintain recurring relationships with their customers over a longer period of time.