Most of us use CAC and CPA interchangeably – but according to Brian Balfour, founder of Reforge that would be wrong at the least and it could be very expensive mistake. Glossing over details can become a way of life at startups and we all know where the devil lives.
First Brian sets the sets the record straight by differentiating CAC and CPA – “CAC specifically measures the cost to acquire a customer. Conversely, CPA (Cost Per Acquisition) measures the cost to acquire something that is not a customer — for example, a registration, activated user, trial, or a lead.”
While looking at this whole calculation (there is a very helpful downloadable spreadsheet where you can plug in your data and figure your own costs) you need to keep in mind that time for converting lead to customer has to be accounted for, you need to separate cost of acquiring new customers from those of returning customers and for freemium products the cost of supporting the non paying free users also needs to be accounted for.
This is a clearly articulated and illustrated article you should read to get your thoughts aligned with real costs of CAC. Thanks to Andrew Chen for sharing this.
Where I learnt this #351
How To (Actually) Calculate CAC
