The Everlasting Debate on How to Calculate CAC
Issue Two: Plus CAC's twin, how to cook the perfect eggs, democratizing transformation and more.
CAC — that unassuming and elusive acronym that finds itself in everything from casual growth conversations to pivotal hinges that decide business valuations, from whether you are renewing the contract with your media agency to determining if you need some caffeine overdose before you walk into the quarterly review.
It is easy to understand why that three-letter word gets so much importance. CAC – or Customer Acquisition Cost – gives any business a central metric to work itself around. It’s the one metric to rule them all. Surely something this important would be unambiguous in definition and wanner of calculation. And yet, CAC is nearly always miscalculated, misunderstood and misuitlized.
CAC's twin CPA — they are not the same
CAC is often confused with CPA, which stands for Cost Per Acquisition. The two are twins, but you do not want to mix the identities here. Much like you do not want to mix up the twin brother at the wedding. A whole lot of abrupt chaos would ensue.
To differentiate between CAC and CPA, a business must first define in no uncertain terms who a customer is. Now in certain verticals of the digital economy, the lines get blurred—more on that in just a bit.
Let’s define the word customer:
cus·tom·er /ˈkəstəmər/ (noun) — a person or organization that buys goods or services from a store or business.
“Buys” is the operative word here; making a purchase. So a customer is a service user who has paid a business some money for that service. This distinction is critical in today’s digital economy since customers, freemium users, trial users, free users and subscribers are all variations of the term user.
Further reading on the subject:
“Selling to the right customer”, Page 70: from Customer Success How Innovative Companies Are Reducing Churn and Growing Recurring Revenue by Nick Mehta, Dan Steinman, Lincoln Murphy.
“From touchpoints to journeys: Seeing the world as customers do” by Nicolas Maechler, Kevin Neher and Robert Park on McKinsey & Company.
Recommended reading for the weekend:
This week, the Weekend Courier recommends stories on giving an entire workforce the capacity to become innovators, how a former travelling Bible salesman helped turn deodorants and antiperspirants from niche toiletries into an $18 billion industry, and the results of trying seven ways to hard-boil eggs.
Democratizing transformation
Many companies struggle to reap the benefits of investments in digital transformation, while others see enormous gains. What do successful firms do differently? By Marco Iansiti and Satya Nadella. Read more on HBR.org.
How advertisers convinced Americans they smelled bad
A schoolgirl and a former travelling Bible salesman helped turn deodorants and antiperspirants from niche toiletries into an $18 billion industry. Read more on smithsonianmag.com.
The best way to hard-boil eggs
Joe Lingeman from Webby award nominee Kitchn tried seven ways to hard boil eggs. She found a clear winner. Read more on thekitchn.com.
That’s all for this weekend. Have a read, slow down a little and go make a difference.