← Business Metric: Operational (all topics)
Customer acquisition cost & lifetime value
What it is
The cost of winning a customer, against the gross profit that customer generates over the relationship. The ratio between them determines whether growth spending creates or destroys value
A ratio of lifetime value to acquisition cost below one means every new customer makes the company poorer
Impact on industries
- Makes marketing spend accountable by treating customer acquisition as an investment with a measurable return
- Reveals whether a business can scale profitably before it commits capital to growth
- Lifetime value depends on assumed retention and margin over years, so it is easily overstated in young businesses
- The payback period on acquisition cost matters as much as the ratio, since long paybacks consume cash even when the economics work