CAC is used by many marketers and companies in order to make more data-driven decisions around the process of attracting and acquiring new customers. Knowing exactly what their CAC is in relation to their return on ad spend, or ROAS, helps marketers understand how much they can spend in order to remain profitable on their acquisition costs.
Since customer acquisition costs fluctuate, they are typically used to measure costs for a specific time, such as a month or quarter. For example, if a company spends $10,000 on marketing for the month and acquires 5,000 new app users, the CAC for the month is $2. If the company also knows that the customer lifetime value (CLV) is $10, they know that their CAC is sustainable and their marketing efforts are profitable. They can then use that information to justify their marketing spend and potentially increase their marketing budget to drive more app installs and customer acquisition.
As Mailchimp highlights, CAC will also vary depending on the business context:
When calculating CAC, it’s important to consider the business context in which the numbers are gleaned. For example, if you’re just breaking into a new market, your CAC may be higher because it often takes a greater up-front investment to get your marketing rolling in a new area. Also, newer companies that have to hire marketing staff or existing companies that decide to augment their current marketing efforts with new people or technologies may have significantly higher CACs.
In order to make the most data-driven decisions with CAC, marketers need to rely on additional metrics and analytics to get a complete understanding of their ROI on marketing efforts.