CAC-LTV-Ratio

The CAC Ratio looks at how much Sales & Marketing expense you spend to buy $1 of new ARR. It’s the inverse of the Magic Number, which measures how much new ARR is created for each $1 of Sales & Marketing expenses.

Definition

CAC Ratio = last period’s Sales & Marketing expense / this period’s new ARR

$CAC(\Delta t)={\frac {S_{x}+M_{x}}{ARR}}$

Details

Sales Expenses (S_x) include

• the wages of all of the personnel in Sales, including commissions
• all expenses for tools used by this personnel
• excluding company-wide tools like email, chat, data storage, etc.

Marketing Expenses (M_x) include

• the wages all of the personnel in Marketing
• all expenses for tools uses by this personnel
• excluding company-wide tools like email, chat, data storage etc.
• including Ad Spend in the given time period Δt

Standardization Status

Request for Comments (RFC): 22/0002 - CAC-LTV-Ratio
Type: metric
Version: 0.9
Status:proposal

See also

• Customer Lifetime Value (CLV)

Sources

• What is Customer Acquisition Cost (CAC)? (productplan.com)