What is a good CAC and how to calculate it

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What is the cost of customer acquisition and why should it be calculated?
Customer Acquisition Cost (CAC) is the amount you spend on each new customer. This metric is often calculated across different marketing channels to evaluate their effectiveness.

CAC is often confused with CPA (Cost Per Action), but this is a mistake. CAC measures the cost of attracting a customer, and CPA measures the cost of a specific user action.

For example, you have a meditation app that offers collections of practices based on the user's interests. The subscription costs 1000 ₽ per month. For this money, the user receives a weekly collection of meditations and can watch them without restrictions. You can use the app without a subscription, but the free plan only provides a limited set of free practices and no personal collections.

You have launched two mechanics on the site. The goal of the first is to register in the service, the second is to buy a monthly subscription. The cost of each user attracted by the first campaign is CPA (they performed an action, but you did not receive money). The cost of each person attracted by the second campaign is CAC (each new client paid for the subscription).

Simply put, CPA is about the target action, and CAC is about the payment.

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How good a CAC score is varies from company to company.

To measure SAS, use the formula:

Formula for calculating the cost of attracting a client
Estimating the cost of customer acquisition can be done by comparing it to another metric, lifetime value ( LTV ). This is a forecast of how much gross profit a customer will bring in during their lifetime as a buyer.

In theory, the CAC to LTV ratio can tell you whether a business is list of argentina cell phone number paying too much to acquire customers. It is generally believed that if CAC is greater than LTV, the business is not profitable.

In practice, everything is more complicated - there is no optimal CAC value for everyone, and even the CAC to LTV ratio needs to be assessed taking into account the company's expenses and the specifics of the business. The more administrative expenses, the lower the CAC should be in relation to LTV for the company to come out on top. The specifics of the business, which are also important to consider, are marginality, the number of repeat sales and the sales cycle.

For example, for an IT service startup without employees, it is enough if the CAC is slightly less than the LTV. That is, the costs of attracting a client will pay off and there will be a small profit, because there are no other costs.