Don’t lie to yourself about your all-in acquisition costs. You need to include all costs, not just how much you’re spending on marketing platforms.

The golden metric in any e-commerce business–arguably any business–is LTV / CAC, or lifetime value to customer acquisition cost. I constantly see, however, that brands are failing to include all relevant costs in their CAC.

Everyone knows you should include marketing platforms costs, like Facebook and Google ad costs.

But there’s also a strong case you should be including three other types of marketing costs:

  1. Agency fees
  2. Creative creation costs
  3. Customer acquisition incentives

On the agency fees side, many agencies charge fees as a percentage of ad spend. In that case, the fee is just a straight up variable cost that scales up and down based on how much you’re spending. You spend more, you pay more. Why would this not be included in CAC?

Fixed agency fees or in-house employee salary costs are a closer call but, in truth, these costs aren’t truly fixed; if you launch on a lot of new additional channels you’re going to need more agencies, pay your agency higher fees, or (eventually) hire more people. For that reason I think you should allocate these costs into CAC too.

Creative is exactly the same story. In some cases there are creative agencies that charge you as a percentage of spend on the creative you use and, in those cases, those fees are exactly the same as variable agency fees. But even “fixed” creative costs should be allocated; the name of the game now on Facebook–especially–is more and better creative. So the costs of generating this creative seem like they should be part of CAC to me. These costs are also not truly fixed–you need way more creative as you spend more.

Finally, at Hubble, we allocated the cost of our free trial box to our CAC. It was either this or lower our customer LTV by the same cost. It doesn’t really matter but you have to do one or the other. If you have a customer incentive like this–a free trial, an upfront discount–you have to charge yourself for it somewhere. Otherwise, you’re just pretending this isn’t a real cost.

In general, I’m not trying to make a point about accounting here. If you don’t truly understand your actual marketing costs, you’re going to make irrational decisions about your marketing spend. Properly account for all of your marketing costs!