How to calculate CAC
Add up everything spent on acquiring customers in a month and divide by the new paying subscribers that month. Spending $20,000 to gain 800 subscribers gives a CAC of $25.
- Paid advertising and promotion
- Affiliate and influencer payments
- Free trials: the cost of serving trial users who never pay
- Discounts and promotional offers for the first period
- Marketing salaries, agencies and tools
Blended and paid CAC
Blended CAC divides all spending by all new subscribers, including those who arrived through search, word of mouth or your existing audience. Paid CAC counts only the subscribers who came from paid channels and is always higher. Use paid CAC to judge a campaign and blended CAC to judge the business.
CAC, LTV and payback
CAC only means something next to what a subscriber is worth. A common target is a lifetime value at least three times CAC. Payback period, CAC divided by monthly margin per subscriber, shows how many months it takes to earn the spending back.
Count trial users carefully. If only 40% of trials convert, the cost of one paying subscriber is the cost of one trial divided by 0.4.
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