CAC (Customer Acquisition Cost)

Formula: CAC = (Sales + Marketing Costs) / New Customers Acquired Example: You spend $10,000 on Facebook ads and $5,000 on a salesperson in January. You get 50 new customers. CAC = ($10,000 + $5,000) / 50 = $300 per customer. Why CAC matters: If your CAC is $300 and customers pay you $50/month, it takes 6 months just to break even. If half your customers churn before month 6, you lose money on every acquisition. This is the death spiral of bad unit economics. CAC must be compared to LTV (Lifetime Value). The golden rule: LTV should be at least 3x CAC. If CAC is $300, customers need to generate at least $900 in lifetime revenue for your business to be sustainable. Ways to lower CAC: (1) Organic channels (SEO, content marketing) scale with lower marginal cost, (2) Word-of-mouth and referral programs leverage existing customers, (3) Product-led growth lets the product sell itself, (4) Better targeting reduces wasted ad spend on wrong audience. CAC payback period: How long until a customer's revenue covers the cost to acquire them. Target under 12 months for SaaS. If it takes 18+ months to recover CAC, you need a lot of cash to grow (or you'll run out of runway). Blended vs. paid CAC: Blended CAC includes all customers (organic + paid). Paid CAC only counts paid channels. Track both—blended CAC gives you the true cost, paid CAC tells you if your paid channels are profitable.

Dropbox famously had extremely low CAC through its referral program: give extra storage for inviting friends. Viral coefficient above 1 meant CAC approached zero for referred users.