A customer who costs 300 can leave you 420 or lose you 120. It depends on how long they stay.
Key findings
- With 300 of acquisition cost and 30 of monthly margin, a customer pays back in 10 months.
- If they stay 24 months they leave 420; if they leave at 6, you lose 120.
- Keeping customers improves the numbers as much as lowering acquisition cost.
Two figures that go together
Customer acquisition cost (CAC) is what it costs you to win a new customer: advertising, commissions, welcome discounts, sales time. Customer value is what the customer leaves you while they stay. A customer is only profitable if they leave more than it cost to win them.
An example with numbers
A hypothetical subscription business: winning a customer costs 300, the customer pays 50 a month and serving them costs 20. Each month leaves you 30, so you recover the acquisition cost in 10 months.
| If the customer stays… | What they leave you after paying back acquisition |
|---|---|
| 24 months | 420 |
| 10 months | 0 |
| 6 months | you lose 120 |
The same campaign can be good business or a loss depending on how long customers stay. That is why looking at the cost per customer is not enough: you need to know how long they last.
How much you can spend to win a customer
The reasonable maximum is what a customer leaves over their average lifetime, minus the profit you want to make. At 30 a month for 24 months, a customer leaves 720 before acquisition: spending 300 leaves room; spending 700 barely does.
Timing matters too: even if the customer ends up profitable, you pay the 300 upfront and take 10 months to get it back. If you win many customers at once, you need cash to fund that wait.
How to improve the numbers
- Retain more: every month a customer stays adds margin with no acquisition cost.
- Raise the margin per customer: price, add-ons or a lower cost to serve.
- Lower acquisition cost: cheaper channels, customer referrals.
- Measure by channel: an average CAC can hide channels that lose money.
Work out your figures with the CAC payback calculator and the return on your ads with the ROAS calculator.