It’s a New Year – Are You Calculating CAC Correctly?
For subscription businesses, customer acquisition cost (CAC) is a key metric, the flip side to monthly recurring revenue. This is because it tells you how much each new customer, who generates that monthly revenue, cost to obtain. While essential, this metric and how you calculate it can be complicated. Get it wrong or calculate based on erroneous numbers, and your strategic decisions for growing your business could disappoint you and put your growth in jeopardy.
This recent blog post, from Profitwell, provides an excellent and thorough discussion on a better way to calculate CAC and why it's important to know how you're going to monetize your customers once you've acquired them. As the author says, “You want customers that are going to stay and pay—this is how you'll achieve an LTV that will pay back and earn profit past your CAC.”
Read the blog here!