4 ms·

What do 'CAC' and 'LTV' stand for?

• johnkpaul 3y ago
  Customer acquisition cost and lifetime value
• skyper 3y ago
  Customer Acquisition Cost LifeTime Value
• inductive_magic 3y ago
  According to ChatGPT, in the context of gps post: "CAC" stands for "Customer Acquisition Cost." It represents the cost a company incurs to acquire a new customer, including all the costs associated with marketing and advertising. "LTV" stands for "Lifetime Value." It represents the total net profit a company expects to earn from a customer throughout their entire relationship with the company. This takes into account all the revenue a customer will bring to the company minus any costs associated with serving that customer over their lifetime.
  • dmoy 3y ago
    > "LTV" stands for "Lifetime Value." It represents the total net profit a company expects to earn from a customer throughout their entire relationship with the company. This takes into account all the revenue a customer will bring to the company minus any costs associated with serving that customer over their lifetime. This seems subtly wrong from what I remember (though it's been like 6 years). Gross profit not net profit. Lifetime is "lifetime", you set a cap in years, it's not really the "entire relationship". The latter one isn't as big of a deal because it gets stupid hard to track/measure that long anyways, but the former one is a pretty big deal.
  • beej71 3y ago
    Remember not to trust ChatGPT with facts.
• danpalmer 3y ago
  Apologies. CAC is "Customer Acquisition Cost" and LTV is "Life Time Value". e.g. If I buy $100 of ad views and over all of those ads get 10 new customers, then my CAC is $10. If a customer on average spends $100 over their lifetime (typically defined as 3 or 5 years, but varies per business) on orders that cost me $70 to fulfil, then their LTV is $30 (Edit: as marketing is not included in gross profit).
  • brandall10 3y ago
    Would it not be $20, or does eve acquisition cost not factor?
    • danpalmer 3y ago
      Good question, but it doesn't (I've updated the comment). The LTV is in terms of gross profit not net profit. It's the revenue minus the direct cost of fulfilling that revenue (cost of goods sold), so it would include: products, shipping, packaging, payment fees, staff time for handling, etc. It would not include: marketing, customer support (surprisingly!), R&D or creating the product, fixed costs such as offices, staff, etc. I'm not quite sure what the best practice is on accounting for salaries of the marketing department. I think you wouldn't typically include full time employees managing marketing channels, but if you outsourced marketing to an agency you probably would account for the all-in cost to acquire customers via the agency, as they are almost their own marketing channel in a way. It really varies though, and I could be wrong on the best practice here.
    • HWR_14 3y ago
      It's $30 because people look at the ratio. That is, LTV/CAC is an important ratio that takes both into account. It makes more sense if you think about it as a function that turns CAC into LTV.
• bg24 3y ago
  Customer acquisition cost. Lifetime value. I am not sure about whether the metrics above are benchmarks for CAC based on advertisement alone.
  • paulddraper 3y ago
    CAC includes all costs, marketing and sales (implementation is part of COGS) Some products (B2C) are marketing heavy. Others (B2B) are sales heavy. But they both get included
• deleted 3y ago
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