What is customer acquisition cost and how to reduce it?

Customer acquisition cost (CAC) is a crucial metric that represents the expense of gaining new users, encompassing various elements like marketing, sales, and advertising costs. Understanding and optimizing CAC is essential for sustainable growth, as lower acquisition costs can free up resources for product development. The balance between CAC and customer lifetime value (LTV) is vital, with a healthy LTV/CAC ratio generally being 3 or higher, indicating that the revenue from a customer should be at least triple the acquisition cost. As competition and privacy regulations drive CAC upward, businesses must focus on strategies to reduce it, such as maximizing conversion rates, improving targeting, experimenting with growth strategies, building growth loops, and mastering a single growth channel. Despite rising costs, effective management of CAC is necessary to ensure that a product reaches its potential user base, ultimately enhancing profitability and competitive advantage.