Why customer acquisition cost (CAC) matters to a first-time founder
Customer acquisition cost tells you whether a channel can pay for itself. Ignore it and you can pour money into ads or sponsorships that lose money on every customer, with the loss growing as you scale. Count the ad spend, tools and time you can fairly attach to winning customers, and leave out the cost of serving them once they have signed up. Investors often ask for it, split by channel.
Examples of customer acquisition cost (CAC)
A founder spends $600 sponsoring a post and three freelancers become customers. Cash customer acquisition cost is $200. Valuing the founder’s ten follow-up hours at $40 an hour raises the fully loaded figure to about $333. Say which figure you are using. Referrals that cost almost nothing belong in their own column. If you fold them into the same average, you hide how expensive the post was.
Common misunderstanding
People fold the cost of serving customers into CAC, which makes it look worse, or leave out their own sales time, which makes it look better. Others compare CAC with lifetime value without noticing they are different kinds of number. Do compare them, because that is the standard check, but remember that CAC is cash spent now and lifetime value is profit you only expect later. A low CAC is little comfort if customers leave straight away. It is also not acquisition cost, the accounting cost of buying an asset and getting it ready to use.
When to use it
Calculate customer acquisition cost when a channel starts to cost real money. Three customers, all introduced by people you already know, will not give you a figure you can trust. Wait until a channel has had a few wins and a few misses.