Cost of Acquisition (CAC) trap.
And why you should optimize payback period instead.
So many acquisition-focused teams tirelessly chase after reducing Customer Acquisition Cost (CAC) or making it just one-third of the Customer's Lifetime Value (LTV). Yet, they often find themselves disappointed with lackluster results. Because in this "money doesn't grow on trees" economy, where every dollar counts, the real hero is the velocity of the payback period.
ROI is back, baby.
Where can CAC-reducing goals go wrong?
Many acquisition teams are mandated to lower the Cost of Acquisition (CAC). This seems like a reasonable strategy. But let's consider two potential sources of customers:
Channel A generates a high volume of customers with a CAC of $5.
Channel B brings in fewer customers but has a CAC of $1000.
The immediate reaction of many would be to shut down Channel B due to its high CAC to reduce the average CAC.
But cheap acquisition is cheap for a reason. Consider that Channel B, despite its high CAC, attracts customers who convert to paid < a month, recoup their acquisition co…
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