If you cannot walk into a board meeting and explain exactly how much it costs to acquire a customer, how much that customer is worth over their lifetime, and what every dollar of ad spend is returning, you are not operating as a CMO. You are operating as a brand manager with a bigger title. CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition →, LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition →, and ROAS are not metrics for analysts to track in spreadsheets. They are the three numbers that determine whether your company grows profitably or burns cash chasing vanity.
What These Numbers Actually Mean
CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → (Customer Acquisition CostCustomer Acquisition CostCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition →) is the total spend required to acquire one paying customer. That means ad spend plus agency fees plus salaries of everyone touching demand generationdemand generationMarketing activities designed to attract and capture contact information from prospects interested in your offer, creating a pipeline of potential customers.View full definition →, divided by new customers acquired in that period. Most CMOs undercount CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → because they exclude headcount. That is a lie you tell yourself.
LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → (Lifetime ValueLifetime ValueLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition →) is the total net revenue a customer generates before they churn. The practical formula: average order value multiplied by purchase frequency multiplied by gross margingross marginGross margin is the share of revenue left after subtracting the direct cost of producing goods or services, expressed as a percentage of revenue.View full definition → multiplied by average customer lifespan in years. If your LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → calculation does not include gross margingross marginGross margin is the share of revenue left after subtracting the direct cost of producing goods or services, expressed as a percentage of revenue.View full definition →, you are measuring revenue, not value.
ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → (Return on Ad SpendReturn on Ad SpendReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition →) is the revenue generated per dollar of paid mediapaid mediaVisitors arriving via paid ads or sponsored placements, where you pay a platform to display your message rather than earning visits organically.View full definition → spend. A ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → of 4x means every dollar in returns four dollars in revenue. Note that ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → is a revenue metric, not a profit metric. A 4x ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → with 20% gross margins means you are losing money. Always connect ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → back to margin.
The relationship between the three: LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → divided by CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → tells you how efficient your acquisition engine is. A ratio below 1 means you are destroying value. Between 1 and 3 means marginal. Above 3 is healthy. Above 5 means you are probably underinvesting in growth. ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → is the channel-level signal that feeds into whether your CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → is sustainable.
Sub-Concept 1: Payback Period Changes Everything
LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition →/CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → of 4 looks great until you realize it takes 36 months to recoup CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition →. That is a cash flow problem, not a marketing success story. Casper, the mattress company, had strong LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition →/CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → ratios on paper but an 18-24 month payback period. When growth capital dried up in 2019-2020, that delay between spend and return nearly broke the business. They went public at a $575M valuation after raising at $1.1B. The payback period was a core contributor to the destruction of shareholder value. Always ask: when do we actually get the money back?
Sub-Concept 2: Blended CAC vs. Channel CAC
Blended CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → averages acquisition costacquisition costCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → across all channels. It hides the truth. If your Google Search CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → is $40 and your TikTok CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → is $180, blending them to $90 leads to a catastrophically wrong budget allocation decision. Dollar Shave Club, before their $1B acquisition by Unilever in 2016, was famous for obsessively tracking channel-level CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition →. Their viral YouTube video had an effective CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → under $5. Their paid social at the time was running closer to $35. Knowing that number at the channel level was what made their growth engine repeatable, not lucky.
Sub-Concept 3: ROAS Thresholds Are Industry-Specific
A 2x ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → in a business with 70% gross margins (software, digital goods) is profitable. A 2x ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → in a DTC physical product business with 40% gross margins means you are funding customer acquisition out of pocket. Gymshark, the UK-based fitness apparel brand that hit $1.3B in revenue by 2022 without external funding, set ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → floors by product category, not by channel. Their core leggings had a higher minimum ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → threshold than their accessories because margin profiles differed. That level of specificity is what separates a scaling brand from one that grows broke.
Sub-Concept 4: LTV Segmentation by Cohort
Aggregate LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → is nearly useless for decision-making. You need LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → by acquisition cohort. Customers acquired through referral programs consistently show 16-25% higher LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → than customers acquired through paid search, across multiple industries. This was documented specifically by Dropbox, where their referral program (designed by Sean Ellis and the growth team in 2008-2009) produced cohorts with dramatically higher retention and expansion revenue. The referral cohort LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → justified a CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → that looked expensive at acquisition because the 12-month and 24-month curves bent upward differently.
Real-World Case 1: Chewy
Chewy, the pet supplies e-commerce company, went public in 2019 and reported a CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → of approximately $65 per customer. On the surface, tight. But their LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → analysis showed that customers who made a second purchase within 90 days had a 5-year LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → exceeding $700. Their entire post-acquisition marketing strategy was engineered around triggering that second purchase. They used handwritten cards, surprise gifts for pet deaths reported by customers, and autoship subscription nudges. The result: autoship customers by 2022 represented 73% of net sales. LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → segmentationsegmentationDividing a market into distinct groups of customers who share similar needs, characteristics or behaviours, so each group can be served with a tailored approach.View full definition → told them where to invest post-acquisition, not just pre-acquisition.
Real-World Case 2: Peloton
Peloton is the cautionary tale. In 2021, their ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → on paid mediapaid mediaVisitors arriving via paid ads or sponsored placements, where you pay a platform to display your message rather than earning visits organically.View full definition → looked exceptional because hardware revenue was high. But connected fitness subscription LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → was being modeled on pre-pandemic retention curves. When churn accelerated post-pandemic, the LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → assumption collapsed. CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → had been justified by a LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → that no longer existed. The stock dropped from $171 in January 2021 to under $10 by early 2022. CFO Jill Woodworth and CMO Dara Treseder were operating on models that had not been stress-tested against a retention scenario shift. The lesson: LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition → models must be rebuilt with updated cohort data quarterly, not annually.
Real-World Case 3: Airbnb
When Airbnb cut its performance marketing budget by $800M in 2020 (forced by COVID), their organic and direct traffic sustained at levels that shocked even their internal teams. What they discovered was that brand-invested cohorts had a dramatically lower effective CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → over a three-year window compared to pure performance cohorts. By 2022, CMO Hiroki Asai was publicly citing that over 90% of traffic was direct or unpaid. Their LTVLTVLifetime Value: the total revenue (or profit) a customer generates throughout their entire relationship with your business.View full definition →/CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → ratio improved because CACCACCustomer Acquisition Cost (CAC) is the total sales and marketing spend divided by the number of new customers gained in a period. It measures how efficiently you grow.View full definition → dropped when brand awarenessbrand awarenessThe degree to which your target audience recognises or recalls your brand, either prompted or unprompted. It measures how present your brand is in people's minds.View full definition → reduced dependence on paid acquisitionpaid acquisitionVisitors arriving via paid ads or sponsored placements, where you pay a platform to display your message rather than earning visits organically.View full definition →. ROASROASReturn on Ad Spend (ROAS) measures the revenue generated for every unit of currency spent on advertising, calculated as revenue divided by ad cost.View full definition → on their remaining paid spend improved because they were retargetingretargetingShowing ads to users who have previously visited your site or interacted with your brand, to bring them back and drive conversion.View full definition → a more qualified, brand-aware audience.
CMO Action Items
Common Mistakes That Kill Results
A16Z's foundational breakdown of CAC, LTV, and payback period with precise definitions used by growth-stage investors to evaluate marketing efficiency.
Research-backed analysis of how LTV varies by customer segment and why acquisition cost optimization without retention context destroys long-term value.