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This is an accounting method that's different from the traditional ones. That's not to say it's wrong. It's just interesting. However, "customer acquisition co

This is an accounting method that's different from the traditional ones. That's not to say it's wrong. It's just interesting. However, "customer acquisition cost" seems to imply that that customer is now "yours" and he'll keep buying without any more spending from you. That assumption is questionable. Maybe he's just on loan to you, and fickle as all hell. Did Uber "acquire" me just because I used them a few times? Traditional accounting is "fixed cost" plus "variable cost." You build your factory (fixed cost), and then produce widgets (variable cost). For a long time, you're amortizing the fixed costs, and eventually the price of the widgets is all profit, assuming the factory still runs. In that method, every customer is a random draw from a raffle, and you have no guarantees that the customer will keep buying. They may, but they may not. You have to keep getting new ones to even keep your base stable.

ZephyrBlu 4y ago
This is primarily a growth model/strategy not an accounting method, and these metrics have been very common in startupland for quite a few years. Customer acquisition cost (CAC) is paired with lifetime value (LTV). The length of time you're on "loan" to the company doesn't really matter as long as LTV is higher than CAC. This model is commonly used for subscription businesses, where assuming each purchase is independent is not really appropriate because they are recurring.
hinkley 4y ago
> However, "customer acquisition cost" seems to imply that that customer is now "yours" I’ve confused a few people this ways in conversation lately and I’m not sure what the solution is, but it’s a case of saying, “even the most optimistic scenario is still very bad”. Keeping someone’s attention is never going to be cheaper than getting it in the first place. The best you can do is spend a maintenance cost to retain them, in which case if enough time passes and enough repeat business happens then the profitability of that customer keeps going up. But you’re going to hit an asymptote that looks like Amdahl’s law, and dictated by those investments.
- AlbertCory 4y ago
  Thanks. Subscriptions always seemed to me like they were for the business' benefit, not for mine. I'm sure it does make the growth models look really good; you've got this nice, regular stream of money coming in. However, it does nothing for the customer. I refuse to subscribe to anything, as a rule. Deliver some value, and I'll pay for it when I need it. YMMV.
  - hinkley 4y ago
    I believe it makes business loans easier to get. Have you never spent money at a company precisely because you hope it’ll stick around? Companies you only really need every three years have a hard time sticking around, and you may find that when you need them most they’re having a going out of business sale. Patronage. Patronage is more than a purely transactional relationship with a company.
    - AlbertCory 4y ago
      OK, can't argue with that. What's a company you subscribe to, purely to help them survive? Clearly Microsoft and Adobe don't need your help.

ZephyrBlu 4y ago

This is primarily a growth model/strategy not an accounting method, and these metrics have been very common in startupland for quite a few years. Customer acquisition cost (CAC) is paired with lifetime value (LTV). The length of time you're on "loan" to the company doesn't really matter as long as LTV is higher than CAC. This model is commonly used for subscription businesses, where assuming each purchase is independent is not really appropriate because they are recurring.

hinkley 4y ago

> However, "customer acquisition cost" seems to imply that that customer is now "yours" I’ve confused a few people this ways in conversation lately and I’m not sure what the solution is, but it’s a case of saying, “even the most optimistic scenario is still very bad”. Keeping someone’s attention is never going to be cheaper than getting it in the first place. The best you can do is spend a maintenance cost to retain them, in which case if enough time passes and enough repeat business happens then the profitability of that customer keeps going up. But you’re going to hit an asymptote that looks like Amdahl’s law, and dictated by those investments.

AlbertCory 4y ago
Thanks. Subscriptions always seemed to me like they were for the business' benefit, not for mine. I'm sure it does make the growth models look really good; you've got this nice, regular stream of money coming in. However, it does nothing for the customer. I refuse to subscribe to anything, as a rule. Deliver some value, and I'll pay for it when I need it. YMMV.
- hinkley 4y ago
  I believe it makes business loans easier to get. Have you never spent money at a company precisely because you hope it’ll stick around? Companies you only really need every three years have a hard time sticking around, and you may find that when you need them most they’re having a going out of business sale. Patronage. Patronage is more than a purely transactional relationship with a company.
  - AlbertCory 4y ago
    OK, can't argue with that. What's a company you subscribe to, purely to help them survive? Clearly Microsoft and Adobe don't need your help.