LeadGen by Larry Cheng

I always see customer acquisition cost (CAC) presented by channel:

Facebook CAC = $x

Google CAC = $x

Tiktok CAC = $x

DOOH CAC = $x

While there is utility in this approach, it should be complemented by a customer-centric view:

Customer Type A CAC = $x

Customer Type B CAC = $x

Customer Type C CAC = $x

Customer Type D CAC = $x

In the customer-centric analysis, the customer types could be category-based, persona-based, demographically-based, first order basket-based, etc. – whatever the most appropriate segmentation is for your business.

It’s equally as important to understand the lifetime value (LTV) by customer-type because that drives the ceiling on CAC for that customer-type.

As an example:

Customer Type A LTV = $1,000

Customer Type A CAC = $100

Customer Type A LTV:CAC = 10x

Customer Type B LTV = $160

Customer Type B CAC = $80

Customer Type B LTV:CAC = 2x

You would much rather pay a higher CAC to acquire Customer Type A given the superior LTV:CAC dynamics.

When you look at CAC only by acquisition channel, it’s easy to default to scaling the lowest cost channel without completely understanding the quality and economics of the customer being acquired through that channel. It may be that a more expensive channel is more economic if it’s acquiring a higher quality, higher retaining customer.

Therefore the optimal analysis overlays customer segment LTV/CAC with acquisition channel economics/CAC to find the optimal seam in the business.