Two numbers decide whether your marketing is a cost or an investment: what it costs to win a customer, and what that customer is worth. Get comfortable with these and every spending decision gets easier.
Customer acquisition cost (CAC)
CAC is simply your total sales and marketing spend divided by the number of customers it produced in the same period. If you spent $2,000 and won 10 customers, your CAC is $200. Track it per channel to see what's really working.
Lifetime value (LTV)
LTV is how much a customer is worth to you over the whole relationship, not just the first sale. A customer worth $500 a month who stays two years is worth far more than a single $500 job. Repeat business changes everything.
The ratio that matters
Compare the two. If a customer is worth $5,000 over their lifetime and costs $500 to acquire, that's a strong, scalable position. If CAC creeps close to LTV, you're working hard to stand still. As a rough guide, healthy businesses want LTV comfortably above CAC.
Why it changes how you spend
- Knowing LTV tells you how much you can afford to spend to win a customer.
- Knowing CAC per channel tells you where to put more budget.
- Together they turn marketing from a gamble into a calculation.
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