Figure 1From “What is CAC?”
The CAC definition card
Name the cost, customer, cohort, window, horizon and comparison before interpreting the ratio.
Figure 1The CAC definition card
| Field | Question to settle | Failure if omitted |
|---|---|---|
| Customer event | What counts as an acquired customer: a first paid contract, activated account, or another declared event? | Leads, trials, bookings, and customers enter one denominator |
| Cost boundary | Which media, sales, commission, onboarding, partner, service, or overhead costs are included? | Two numbers use the same label but different numerators |
| Customer cohort | Which customers entered under the same offer, channel, market, and acquisition regime? | A mix shift looks like efficiency change |
| Acquisition window | Which cost period is paired with which customer starts? | Current customers are paired with old or future spend |
| Assignment rule | Was cost allocated, directly observed, attributed, or tested against a counterfactual? | Assigned CAC is presented as incremental CAC |
| Observation horizon | What future margin, payback, or lifetime-value question is the number meant to serve? | CAC becomes a verdict without a time question |
| Decision use | What action changes if the number rises, falls, or separates by cohort? | The metric becomes dashboard decoration |
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Source: Author's framework grounded in the customer-value and customer-profitability boundaries of Gupta, Lehmann and Stuart, Rust, Lemon and Zeithaml, Mulhern, and Malthouse and Blattberg. The card is a decision aid, not a benchmark.
Source and evidence
Each line names a claim related to this exhibit, its source, and how it was checked.
- A GLS04-C2 The sensitivity is theirs and it is asymmetric: "a 1% improvement in retention, margin, or acqui"sition cost "improves firm value by 5%, 1%, and .1%, respectively"Gupta, Lehmann & Stuart. (2004)
- A RLZ04-C1 The framework is a trade-off device, in the authors' words: "a unified strategic framework that enables competing marketing strategy options to be traded off on the basis of projected financial return, which is operationalized as the change in a firm's customer equity rel"ative to the incremental expenditure needed to produce itRust, Lemon & Zeithaml. (2004)
- A RLZ04-C2 The components of a lifetime value are enumerated: "each customer's lifetime value results from the frequency of category purchases, average quantity of purchase, and brand-switching patterns combined with the firm's contribution margin"Rust, Lemon & Zeithaml. (2004)
- A MUL99-C2 Concentration is analysed as a distribution, not asserted as a ratio: "a sharply descending curve for the ordering of customer profit" corresponds to a skewed frequency distribution, and the Lorenz curve's shortcoming is that "it cannot portray percentiles of customers who represent a financial loss to a firm"Mulhern. (1999)
- A MB05-C3 "the feasibility of such strategies depends on the probabilities and costs of misclassifying customers", so it turns on prediction accuracy, forecast horizon, and the costs of misclassification.Malthouse & Blattberg. (2005)
Grades: A, verified against the printed page of the primary source · B, primary source, text layer only · C, authoritative secondary · D, reported.
From the essay
Growth that compounds
What is CAC?
CAC is a defined cost per acquired customer, not a universal ratio. State the cohort, boundary, horizon and counterfactual before comparing channels.
Read the essayThis exhibit belongs to an essay: the numbers live here, the argument lives there.
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Related exhibits
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The customer lifetime value boundary card
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The CAC payback cash calendar worksheet
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The customer-prioritization misclassification card
The 20-55 rule: customer prioritization misclassifies the portfolio
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