How CAC is worked out
CAC is total spend divided by the number of new customers. With a lifetime value you can compare the two, and with a monthly margin you can see how long a customer takes to pay back what they cost to win.
CAC = spend ÷ new customers LTV:CAC = CLV ÷ CAC Payback months = CAC ÷ monthly margin
Nothing is rounded until the result is shown.
Example
$30,000.00 spent on sales and marketing, 150 new customers, a lifetime value of $600.00, and $20.00 of gross margin a month per customer.
- CAC: $30,000.00 ÷ 150 = $200.00
- LTV:CAC: $600.00 ÷ $200.00 = 3 to 1
- Payback: $200.00 ÷ $20.00 = 10 months
Questions
What spend counts?
Whatever you decide is the cost of winning customers in the period: advertising, sales salaries and commissions, tools and so on. Use the same choice every time so periods compare.
Which customers count?
Only new customers won in the same period as the spend. Repeat customers and renewals do not belong in the count.
What is the LTV:CAC ratio?
Customer lifetime value divided by CAC: how many times a customer’s value covers the cost of winning them. Get the lifetime value from the CLV calculator.
How is payback worked out?
CAC divided by the gross margin one customer brings in a month. It is the months until the margin covers the acquisition cost. It assumes the margin stays the same each month.
Is there a target ratio?
This page gives none. Rules of thumb vary and are not from an official source; compare with your own history and cash position.