How To (Actually) Calculate CAC

(Andrew Chen) #1

Originally published at:
[Andrew: Paid marketing remains an integral part of many products’ acquisition channels, and one of the key metrics is Cost of Customer Acquisition, which is a nuanced calculation with lots of gotchas. My good friend Brian Balfour (ex-vp growth at Hubspot) put together this incredible essays with details on how to think about it.] Brian Balfour…

(Dustin Robertson) #2

Great article thank you for sharing.

I was curious about the argument to include salaries and tools in the CAC calculation. We often have to compare marketing channels to each other and it is easier to do if you just look at the variable costs involved. Sunk costs should be evaluated but not sure CAC is the best place to decided if you have the right tools or team?

(Darren Lester) #3

Nice article.

I was wondering though, if you get into the muddy waters of considering ‘indirect’ sales and marketing costs (engineering, support etc.) and fixed costs (salaries), isn’t the logical place to end up that you should just count ALL of your costs each month, and divide it by the number of new customers acquired?

Ultimately, ALL business resources must (or could be argued to) contribute to acquiring new customers in some way (if they don’t, what do they do?!). This approach may actually be a useful dose of reality for many in the startup world :wink:

So, I can see the benefit of measuring CAC without these indirect costs, in terms of measuring the success / impact of specific marketing and sales activities, and I can see a very simplistic benefit of just counting all costs.

Struggling to see the benefits of the messy hybrid?

(David Cohen) #4

Great article, I never really thought about considering CAC and CPA and used CPA with the models you took into account, but its great to break things into understandable parts for sure.

(Jordi Llonch Esteve) #5

Awesome article. I hoped someone explained me that in detail when I was starting my startup 4 years ago… The problem arises when you ask your marketplace users to register in your platform, but not all of them generate value from day 1 (as Brian explains in detail in the article). It costs you $$$ to acquire users, but they might be wandering around for days, months or even years until they finally use [and pay for] the service.

This is even more painful in 2-sided marketplaces where only one side pays for the service. That’s why I’d like to share with you the simple formula we use to calculate Sharing Academy’s CAC and CLTV, based on CPA. Even though we are a peer-tutoring marketplace, it can be used for any lead-generation marketplace where revenue comes from one side only.

Hope it is useful to all entrepreneurs out there.