CAC is how much you spend on marketing for every new customer acquired. While Cost per Acquisition (CPA) typically focuses on the advertising cost to obtain any direct lead or conversion, CAC looks more holistically at the full cost to acquire new customers from all marketing sources, including working and non-working dollars.

Spending to acquire customers without understanding your CAC is unlikely to impress investors if these customers aren’t adding to your bottom line. For example, if CAC is too high, your business may be acquiring unprofitable customers. On the other hand, if it’s too low, you may be missing out on incremental growth.

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Demonstrating that customers contribute enough to cover their CAC can help secure investment. A good rule of thumb is that CAC should be paid back by the time your average customer places their second order with you. There are elements of CAC that are outside your control (e.g., inflation), but you should always try to maintain CAC at a defensible rate. Some things you can do include:

• Invest in the most effective channels

• Use marketing automation tools to reduce ineffective spend

• Optimize web conversion

• Add custom retargeting and cart abandonment emails

• Create a referral program

You can find more tips on keeping CAC low in our blog here.

Where CAC helps us understand the cost to acquire a customer, LTV helps us understand the total revenue the average customer will contribute over their entire lifetime as a customer. LTV helps businesses forecast future revenues, with high LTV showing that you have a loyal customer base who make repeat purchases. Investors pay close attention to the LTV:CAC ratio. Ideally this should be between 3:1 and 5:1. Lower ratios indicate you are over-spending in marketing, whereas higher ratios indicate you are under-investing and can market more aggressively.

There are generally two ways to increase LTV:

• Increase your average order value, for example:

• Incentivize larger purchases by offering bundles of popular products

• Cross-sell compatible items

• Offer discounts on high-value orders

• Increase a customer’s order count, for example:

• Encourage repeat orders through email remarketing or other re-engagement

• Update product lines, offer exclusives to encourage additional sales

• Set up a loyalty program or rewards scheme

For more tips on improving your LTV, check out our blog here.

Site traffic is the number of visitors to your website and provides a good baseline of how interest in your business has been trending over time. From an investor standpoint, it is helpful to understand this trend from four angles:

• How your traffic has trended relative to itself over time

• How that compares to top competitors in your category

• How that trend compares to industry growth/ demand

• How well you show up in organic search for key terms (SEO)

In addition to overall trends, it is important to understand what portion of your traffic comes from different types of sources (e.g., earned vs. paid) to get a feeling of how well balanced (or how healthy) your brand is. Having an understanding of these dimensions, how they are changing over time, and what your plans are to improve or optimize your direction of travel are critical to helping investors understand your ability capture demand for your product or service.

Customer retention rate is the percentage of customers who come back and purchase from your brand again. Subscription based businesses may prefer to monitor churn, which is the percentage of customers cancelling their subscription. Maintaining strong retention is important to investors as it demonstrates a competitive advantage over other brands that keeps consumers coming back. It’s also cheaper to maintain a relationship with an existing customer rather than spend to acquire a new one, which improves profit margins. Existing customers are also often more willing to spend on trying new product lines.

Sending personalized communications to different customer segments with custom offers can encourage users to stay with you. It’s also worth considering if a subscription model makes sense for your business as this is a great way to cement repeat purchases.