Every marketing decision eventually comes down to one question: is this customer worth more than it cost to win them? Four numbers answer it.
Customer acquisition cost (CAC)
CAC = total acquisition cost ÷ new customers. Include media, tools, agency fees and sales commissions. Example: $10,000 spent, 50 customers → CAC $200.
Lifetime value (LTV)
LTV = average revenue per period × gross margin × average lifetime. Example: $100 a month × 60% margin × 30 months → LTV $1,800.
LTV : CAC
$1,800 ÷ $200 = 9 : 1. Many businesses aim for at least 3 : 1, but the right number depends on cash flow and margins.
Payback period
Payback = CAC ÷ monthly gross profit per customer. $200 ÷ $60 → just over three months. Shorter payback means you can reinvest faster.
Maximum cost per lead
Max CPL = what you can afford per customer × close rate. If you are happy to spend up to $600 per customer and close 20% of leads, you can pay up to $120 per lead.
For pay per call
Revenue per call = payout × payable rate. With a $45 payout and 60% payable calls, each call is worth $27 — so your cost per call must stay below $27 to profit.
Common mistakes
- Leaving out commissions, refunds and chargebacks.
- Using platform-reported conversions instead of real sales from your CRM.
- Judging channels by cost per lead instead of cost per customer.
Use the free unit economics calculator in Marketing Fundamentals and go deeper in Analytics, Tracking & Automation.