f you’re trying to boost your marketing, target more qualified leads, and retain existing customers, two metrics matter most: customer acquisition cost and lifetime customer value.
Let’s start with customer acquisition cost, or CAC. Your CAC is how much it costs your business to acquire a new customer over a certain period. It includes sales and marketing expenses incurred in the pursuit of new customers, including overhead.
Calculating your CAC is simple. Divide your marketing expenses by the number of customers you’ve earned over a set period, such as 12 months. For example, if you’ve spent $200 on marketing and earned 100 customers, your CAC is $2.
The aim is to reduce CAC over time by finding more qualified leads, optimizing your content, and improving customer satisfaction levels. Think about it this way: the lower the CAC, the healthier your marketing strategy.
Lifetime customer value, or LCV, is a prediction of revenue you’ll generate from a single customer for as long as you work together. The longer a client or customer stays with you, the more revenue you’ll earn from them.
When calculating LCV, use the following five steps:
Determine the average purchase value – divide your annual revenue by the number of purchases made.
Identify how often people buy from you – divide the number of purchases by the number of new, i.e., unique customers.
Calculate customer value – multiply your totals from steps one and two.
Work out the average customer lifespan – identify the number of years the average customer stays with you.
Multiply your totals from steps three and four, and you’ve calculated your LCV.
You can grow LCV by, for example, boosting customer service and improving the value of services offered.
Combined, CAC and LCV offer key insights into your company’s overall performance. To learn more about tracking key metrics, schedule a call today.
