Let’s talk about customer acquisition costs (CAC). This math is simple. LTV X Average profit margin = maximum CAC
The keyword is maximum.
But for some industries, that maximum can be really, really high.
(Especially for those of us with a midwestern mental framework.)
A situation where customer acquisition costs hundreds, thousands, or 10’s of thousands of dollars makes sense.
(Or 100’s of thousands and millions, but we don’t swim in those rivers.)
For some companies and decision makers in these industries, it can often be somewhere between counterintuitive to just gut-feeling wrong that spending $600 or $6,000 to acquire one customer makes sense all day, every day.
But it often can.
This can rationally lead to casting a wide net in advertising and marketing, knowing that the few leads and clients you land will make it all worth it. It also rationally leads to sales guys taking prospects out for $1000 rounds of golf + lunch.
On the other side of the equation, it also leads to businesses knowing that they need to cast a very wide net trying to grab a huge number of customers because their CAC is somewhere in the single digits and the scale of mass-market advertising is the only solution.
It’s not that any one approach is better or worse. It’s that if you know the LTV and max CAC for your business, it makes it far simpler to make educated decisions on strategy and tactics to acquire those customers.
Over the years, we’ve found that it’s far more often the case that people will underestimate a rational CAC than the opposite (VC-funded online startups excluded), but once they realize what makes sense, it opens a number of doors.
Those open doors lead to greater growth, and greater success.
Here’s a link to our CAC calculator.
We hope that you’ve found this helpful, especially if you’re a small business looking to grow.