But this rule is not universal. Depending on the specifics of the company, the initial investment in attracting a client can be very large. But new buyers actively purchase goods, thereby compensating for significant costs with a consistent reduction in marketing costs.
A textbook example is the distribution indonesia mailing list of an electronic magazine by subscription. When a startup is launched, the CAC can reach large values. However, with subsequent sales, the company spends almost no money, since customers independently (or after a call) renew their subscription.
Consequently, over time, revenues will exceed costs.
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LTV
Lifetime Value is the lifetime value of a customer. To calculate the indicator, you need to subtract the cost of the product and the costs of attracting a customer from the total sales revenue.
When comparing these two parameters, the formula used to determine Lifetime Value is taken into account. If it does not include acquisition costs, the LTV value must be less than CAC. Otherwise, the company is clearly incurring losses.
LTV (Lifetime Value) what is it for
To assess the return on marketing, a specific indicator is used, obtained by dividing LTV by CAC. If the coefficient is less than one, advertising is unprofitable. A value greater than 3 indicates good efficiency. Let us clarify that the value of this parameter may vary in different market niches.
If a lead shows a high LTV, you can invest more money in attracting and retaining them, even if the first order does not provide profitability. In the long run, over time, this user will generate income that exceeds costs.
If the LTV formula takes into account CAC costs, a value greater than zero indicates marketing profitability.
In business, you need to strive to reduce the CAC. But not everything is as clear as it seems in theory. Many factors have a great influence on processes. For example, a large company with high profitability, whose clients often make repeat expensive purchases, can afford higher CAC values.
For a complete analysis, it is recommended to study the influence of the following parameters:
Competitors have similar ratios. Compare your indicators with the industry average.
Business model and profit. Determine the customer's marginality. Try to avoid situations where CAC is a significant share of the profit structure.
Target CAC: It is useful to determine the optimal level for your company and strive to maintain it.
Let us add that the acceptable level of customer acquisition cost depends on the influence of both internal and external factors. It is important to maintain an optimal balance between costs and income from customers.