Customer Acquisition Math

A discussion on how to evaluate customer acquisition costs and lifetime value, focusing on the importance of understanding unit economics in business.

Key Metrics to Track

• Customer Acquisition Cost (CAC)

  • How much you spend to acquire each customer
  • Include all marketing and sales costs
  • Should be measured against lifetime value

• Lifetime Value (LTV)

  • Total revenue expected from a customer
  • Must be significantly higher than CAC to build sustainable business
  • Example: If CAC is $2, customer needs to generate $4-5+ in value

Red Flags in Unit Economics

• Businesses avoiding clear metrics discussion

  • Burying actual numbers in complex explanations
  • Using vanity metrics instead of core business metrics
  • Focusing on total numbers instead of per-customer economics

• Poor CAC to LTV ratio

  • Spending too much to acquire customers relative to their value
  • Not having clear path to profitability per customer
  • Relying on future monetization without current proof

Success Indicators

• Clear understanding of unit economics

  • Ability to explain customer acquisition costs simply
  • Transparent about current metrics
  • Can demonstrate profitable customer acquisition

• Organic growth

  • Getting customers without paid advertising
  • Lower CAC through word-of-mouth or viral growth
  • Natural product adoption without heavy marketing spend

Important Considerations

• Market conditions affect CAC

  • Different industries have different acceptable CAC levels
  • Market competition can drive up acquisition costs
  • Need to adjust strategy based on market dynamics

• Revenue model impacts

  • Subscription vs one-time purchase affects lifetime value
  • Different monetization strategies require different CAC tolerances
  • Need to align acquisition strategy with business model