Understanding CAC
Customer Acquisition Cost (CAC) is one of the most critical metrics for startup success. It represents the total cost of acquiring a new customer, including marketing, sales, and related expenses.
Calculating Your CAC
CAC = (Total Sales + Marketing Costs) / Number of New Customers Acquired
Track this metric monthly and by channel to understand which acquisition strategies are most efficient.
Strategies to Reduce CAC
- Optimize your conversion funnel
- Focus on high-performing channels
- Improve targeting and segmentation
- Leverage content marketing and SEO
- Build referral programs
- Automate where possible
The CAC:LTV Ratio
Your Customer Lifetime Value should be at least 3x your CAC. If it's lower, you need to either reduce acquisition costs or increase customer value.
Channel-Specific Optimization
Different channels have different CACs. Test multiple channels, measure rigorously, and double down on what works while cutting what doesn't.