This math is simple:
Lifetime Value X Average Profit Margin = Maximum CAC
The keyword here is maximum. 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 tens of thousands of dollars makes sense. (Or hundreds 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.
Maximum CAC gives an upper boundary and informs marketing and sales strategies.
If you know the Lifetime Value and max CAC for your business, it makes it far simpler to make educated decisions on strategy and tactics to acquire those customers.
Want to calculate CACs for your business? Use our CAC Calculator.