There are 3 types of Customer Acquisition Cost metrics–and most founders I know confuse them and hurt their business.

First, there’s overall blended CAC. This is your overall customer acquisition cost and is calculated by summing the amount you’re spending to acquire customers–including variable agency fees and creative costs–over the total number of new customers acquired in any given time period.

You’ll note that this includes all customers acquired, including customers you got organically through word of mouth and so didn’t pay anything to acquire. This number doesn’t exactly tell you how much it’s costing you to acquire a customer on your paid marketing spend. But it’s still a very important acquisition metric to track because the overall health of your business is determined by your LTV / (overall blended CAC) ratio.

Second is your paid CAC, which is the amount it costs your business to acquire a paid (non-organic) customer, on average. By definition, this number will be higher than your overall blended CAC because it’s not averaged down by organic–$0 cost–customers.

Calculating this number requires estimating your organic customer acquisition which is somewhat difficult to do precisely but post checkout surveys are probably the best way. It’s still really important to track because it shows you, on average, the efficiency of your paid marketing efforts.

I’ve seen several businesses that have good overall blended CAC numbers but, when you dig just a little more, you see it’s largely due to an influx of organic customers and their paid marketing efforts aren’t working well.

Finally, you really need to track your incremental paid CAC. This is the cost to acquire an incremental paid customer for your business, or what it costs you to acquire a customer with your last marketing dollars spent.

It’s possible–and actually I’ve seen it happen quite frequently–that a business can have a good paid CAC but an incremental paid CAC that’s too high for the LTV of their customers.

Each of the 3 CAC metrics have different uses. In general, I would use them in the following way:

  • Overall blended CAC: overall health of the business compared to LTV of customers
  • Paid CAC: overall efficiency of paid marketing
  • Incremental paid CAC: Relative efficiency of your last marketing dollar spent to inform whether you should spend more or less

Let me know what you think in the comments.