What is the difference between CAC and CLV?

What is the difference between CAC and CLV?

CAC stands for Customer Acquisition Cost, which is the cost associated with acquiring a new customer. CLV, or Customer Lifetime Value, is the total revenue expected from a customer over their entire relationship with a business.

Why is it important to understand both metrics?

Understanding both CAC and CLV helps businesses evaluate the effectiveness of their marketing strategies and ensure they are acquiring customers profitably.

How can I calculate CAC?

To calculate CAC, divide the total costs associated with acquiring customers (like marketing expenses) by the number of customers acquired during that period.

And how do I calculate CLV?

CLV can be calculated by multiplying the average purchase value, average purchase frequency, and average customer lifespan.

Can you give me an example of how to use these metrics together?

Sure! If your CAC is $100 and your CLV is $300, it means you're spending $100 to acquire a customer who will bring in $300, indicating a healthy profit margin.