Customer Acquisition Cost

In 2015… Google spent a staggering 14.4 BILLION dollars on “traffic acquisition costs.” 14.4 Billion. Why? Why would a tech titan like Google need to pour such a fortune into customer acquisition? Because… no customer comes for free. No matter how big you are. And that… brings us to what is your Customer Acquisition Cost. Or… CAC.

Why It Matters

CAC isn’t just ad spend. It’s more. It’s the discounts you offer… the promotions you run… the events you host… your SEO costs… sales commissions. Costs that surprise you. And why does it matter? Because if your Lifetime Value — your LTV — doesn’t EXCEED your CAC… you’re BLEEDING money with every customer.

Who Gets the Credit?

How did you acquire that customer? Where did she come from? Her journey of discovering you was messy. She saw your ad… read your blog… clicked a social link… get a nudge from a friend. But WHO… gets the credit? WHO brought them to your doorstep: The ad, blog, social post, or the referral?

There are no easy answers. Just different lenses:

• In Last Touch Attribution, the last interaction gets ALL the credit. Simple. But simplistic.
• In Distributed Attribution, credit spread evenly across every touchpoint. Balanced… but diluted.
• In Decaying Attribution, recent interactions get more weight. Fresh impressions matter.

Each model? A different truth. A different story. But remember… attribution? It’s part science… part art. The answer to this will drive incentive structure for your marketing teams.

How To Distribute the Costs?

Alright. Now… the math. List your channels. Assign costs. For ads, use cost per click. For PR, the hours spent courting media… plus that agency retainer. For emails, cost for content creation… and the grind of list-building.

Next apply your attribution model to see how your customer acquisition cost… takes shape. It is extremely complicated to calculate CAC on a per customer-basis. Hence, most calculate it using segmentation or cohorting.

Let’s talk scenarios. Real ones.

For physical products like cold cream, your real customers are wholesalers and retailers. But returns can complicate the calculation.

Enterprise software? Your primary cost is the sales team. Their commissions can DWARF your marketing spend. Ignore them and you’ll miscalculate your CAC.

Mobile apps? It’s often install ads. But with multiple networks… costs get tangled. Companies usually average them to stay sane.

The Payback Period

CAC tells you WHAT you pay… but WHEN do you get that money back? Spend $10 to get one customer. When does that $10 return? Immediately? Next month? Next year?

For some businesses, it’s instant. Others… like subscriptions… you have to wait for months. Picture this: If your CAC is $1,000… and your customer pays you $100 a month… that’s 10 months of waiting. TEN months of burning capital.

And if you acquire 100 customers in January? You’ve spent $100,000. Yet, you only make $10,000 that month. Ninety THOUSAND in the hole… until October. This payback period isn’t abstract. It’s your cash flow strategy and defines how much funding you need to raise.

Conclusion

So… what now? Go, break down those costs. Choose your attribution model. Calculate your payback period. Because knowing your CAC isn’t just knowledge. It’s POWER. It helps you answer: how much capital do you need to raise to acquire the next 10 million customers?