Customer Acquisition Cost (CAC)
Formula: CAC = Total Marketing and Sales Expenses/ Number of New Customers Acquire
Concept: Customer Acquisition Cost (CAC) represents the total cost of acquiring a new customer. This includes all the marketing and sales expenses incurred to attract and convert a potential lead into a paying customer. These expenses can include:
Advertising costs
Salaries of marketing and sales staff
Software and tools used for marketing and sales
Promotional and event costs
Any other expenses directly related to acquiring customers
Example: If a company spends $10,000 on marketing and sales in a month and acquires 100 new customers, the CAC would be: $$100. So, the company spends $100 to acquire each new customer.
Customer Lifetime Value (LTV)
Formula: LTV=Average Revenue per Customer X Gross Margin X Customer Lifetime = Customer Lifetime Value (LTV)
Concept: Customer Lifetime Value (LTV) is a prediction of the net profit attributed to the entire future relationship with a customer. It considers the revenue a customer brings in, the gross margin (revenue minus the cost of goods sold), and the duration the customer remains active.
Example: If a customer spends $20...
