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  • Writer's pictureAjay Row

Why a single CAC doesn't make sense - Part 2

In your market, let’s say there are two types of customers you can acquire. The first (1) will stay for 20 years, the other (2) for 3 months.

The product you’re selling yields a Rs 10 margin and is purchased monthly.

So from 1s you expect 10 x 20 x 12 = 2400 of margin (ignoring inflation and much else — including cross-sell and up-sell). And from 2s you would expect 10 x 3 = 30.

Who would you rather have? 1s or 2s?

Assume that you don’t have a single CAC and instead create a budget that reflects his reality: 1s have a CAC of Rs. 100 - expensive brutes.

2s on the other hand, being flirtatious, are cheap and chirpy, and have a CAC of Rs 50. So now with this on 1s you make a margin of 2300 and on 2s you lose 20. Not good if you’re interested in profitable sustainability.

Mind you, this doesn’t take in to account the incremental cost of acquiring another 2 to replace the one who disappears every quarter. Which would be 50 x 4 x 20. Gosh! If you only had a 1 instead you’d have saved 4000 of incremental spend on CAC right there.

Which is of course equivalent to the margin you’d earn from 4000/2300 or 1.7 of the good customer, the 1s. Which means acquiring for the sake of acquiring, reducing your CAC in the process, is actually wiping out the profit from good and profitable customers.

Big Question. How do you tell the 1s from the 2s? How do you better use your advertising spends? 🤔

Ideas are welcome. So please share your thoughts below. 💡

(Hint. I’m a #datadrivenmarketing#crm and #loyaltyprogram guy. Could any of those help? How? Is your data and loyalty program a possible source of insight to separate the wheat from the chaff? Can it be even more? A tool to acquire? How?)

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