What are CLV and CAC?

With the raise of Data Analytics, the most common concept we have heard about from Marketing side of Data Analytics is ‘CLV’ and ‘CAC’. So, what are CLV and CAC?

Customer Lifetime Value
In the world of marketing analytics or ‘nontraditional way of marketing’, we can measure Customer Lifetime Value (CLV) which given the data we could collect from customers. Instead of measuring brand awareness or brand loyalty, these new era of marketers skip towards the end of the journey which is ‘Revenue’. CLV measures the lifetime revenue we could get from a specific client or consumer. Enhanced CLV by using Time Value of Money (from my Finance 101 course) to discount the value back to present value that the client is worth to us.

Customer Acquisition CostOn the other side, we can measure Customer Acquisition Cost (CAC) which measures how much the company spend to get the exact same customer. This means that we can actually compare both CLV and CAC to see how much profit or how valuable a specific customer value to the company.

In theory, this is a great concept. However, to attribute all costs and revenue to a specific customer is not so simple. For example, if the company put the efforts to run the billboard advertisement along with Facebook advertisement and get some new customers. How should we calculate the cost of acquisition (CAC) for a customer?

At Davoy, we’re expert in consumer analytics and we can help you with CLV and CAC attribution. Just fill in the contact form and we’ll get back to you 🙂

 

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