Customer acquisition cost (CAC) is a foundational metric that all marketers should know and optimize around.

The cost that a B2B or B2C company is willing to pay for a new customer informs all marketing and advertising campaigns.

For instance, if your CAC is $50… and you’re advertising on direct mail and acquiring new customers for $25… then that is a signal that you can invest more in direct mail to scale the results.

What’s more, CAC has a direct correlation to the metric, Lifetime Customer Value. In that same example, if you are paying $25 for a new customer via direct mail… and the lifetime value (LTV) of that customer is $250… then that is a signal that that you need to double-down and invest more heavily into direct mail.

The LTV:CAC ratio measures the relationship between the lifetime value of a customer and the cost of acquiring that customer. It is a signal of customer profitability and marketing efficiency.

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