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Cost to Acquire Customer
Definition
Customer acquisition cost (CAC) is the cost related to acquiring a new customer. In other words, CAC refers to the resources and costs incurred to acquire an additional customer.
Customer acquisition cost is a key business metric that is commonly used alongside the customer lifetime value (LTV) metric to measure the value generated by a new customer.
Caveat
A lot of times people have this misconception: That when you spend money and get a user to just sign-up for the product, they have acquired the customer. That’s wrong.
You should always consider a customer acquired only when they have experienced the core value proposition of the product.
Some of the examples of core value prop are as follows.
Airbnb → Helping people stay at Airbnb homes
Paytm → Transferring money to your contacts or merchant's
Example
Take the example of Airbnb.
Assume Airbnb spend $10 to get a user to sign-up. Later this user completed their first Airbnb stay, that means the user experienced the core value proposition of Airbnb. Then, the customer acquisition cost will be $10.
How does this change for further use cases for Airbnb?
Imagine if Airbnb does a marketing campaign & spends $10,000 on it. It gets 100 users to signup on to Airbnb however only 10 users’ end up booking and staying at an Airbnb property.
In this case, the CAC will be = $money spent / customers
CAC for Airbnb’s campaign = $10,000 / 10 = $1000
