CAC – Customer Acquisition Cost
Total marketing and sales spend divided by the number of new customers. Always compare to LTV. A healthy ratio: LTV at least 3x higher than CAC.
In practice
Different from CPA! CAC includes all marketing costs — including team headcount, agency fees, and tools. Many businesses calculate CPA and not CAC — then get surprised they aren't profitable.
Common misconception
Calculating CAC from paid ads alone. In practice: marketing manager salary, agency, tools — all count. True CAC is usually double what people think.
How to fix it
Did CAC rise? (1) check a specific channel that got more expensive, (2) check demand in Google Trends, (3) consider organic channels.
Example
A supplements store: paid-ad CAC was $27. A referral program dropped CAC to $16. Referred customers bought again 40% more often.
Priority
In the early stage, CAC matters less than PMF. After proving people buy and return — CAC becomes metric #1.
Related terms
Keep learning. Metrics that touch the same area:
- Churn RateFinanceThe percentage of customers/subscribers who stopped buying or paying in a given period. High churn means every new customer just replaces an old one. Per Harvard research: cutting churn by 5% increases profit by 25-95%.
- eCommerce / Electronic CommerceMarketingAll business activity conducted online — showcasing products, ordering, payment, shipping, and post-sale service. The backbone of every online store.
- CPC – Cost Per ClickMarketingThe price an advertiser pays each time a visitor clicks the ad. Influenced by competition, Quality Score, and landing page relevance.
- CPM – Cost Per MilleMarketingThe cost of advertising per 1,000 ad impressions. A key metric in awareness-focused and brand-building campaigns.
- CPA – Cost Per AcquisitionMarketingThe amount it costs to get a customer to complete a desired action. A core profitability metric — if CPA exceeds gross profit, the campaign loses money.
- ROAS – Return on Ad SpendMarketingRevenue generated divided by ad spend. A ROAS of 4 means $4 in revenue for every $1 spent on ads.
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