Lowering Your Marketing Cost By Understanding CAC and LTV

For any company that does business on-line or uses the Internet and their website as a funnel for leads (so basically all companies) these two calculations are vital for the success of your business. 

Your CAC (Customer Acquisition Cost) is how much you need to spend to sign up and engage a new customer. LTV (Lifetime Value)  is how much money will you make from this customer for the entire duration they are using your product. 

In basic terms your CAC<LTV. That is the basic formula for some level of success. 

I have written a full blog on this topic which you can find below 

We even included this free LTV calculator which helps businesses quickly and easily understand what the estimated lifetime value of a customer is and what their maximum CAC should be. 

Once you are armed with these two parts of the equation you will better understand the profitability of your business and what areas you need to improve on. 

One of the biggest areas all companies should look at is churn. Acquiring new customers is more expensive than keeping your existing customers. Spending more on customer support and loyalty programs may in the long run become a more efficient use of your capital as it lowers your churn rate. 

Most companies focus on sales and pay their sales team huge amounts for bringing on business. You should consider what the role of your customer support has in keeping your customers, because ultimately that will mean you spend less money per customer.