I’ve written before about managerial ratios like the spend on employee development. One of the metrics that has come into vogue in recent years is something called customer acquisition cost (CAC), which is the ratio of dollars you spend to acquire a new customer to the revenue from that customer. More sophisticated companies take that measure to the next level by comparing their marketing and sales costs with the lifetime margin that customer will generate for their business. That’s the formula we’ll use here.
CAC got its start in the software-as-a-service (SaaS) world to gauge whether those companies had the potential to reach launch trajectory. Investors also use CAC to decide whether a business is worth making subsequent investments in.