What are CAC and LTV? Calculating acquisition costs and customer value

CAC measures the cost of acquiring a new customer

CAC, short for Customer Acquisition Cost, equals total expenditure on acquiring new customers during a period divided by new customers with completed orders within the same scope. Costs may include advertising, content, affiliate commissions and staff time supporting acquisition, provided the business defines them consistently.

Hypothetical example: this month, VND 10 million in advertising and VND 2 million in content production acquire 100 first-time customers. CAC is VND 12 million divided by 100, or VND 120,000 per customer. If the system records 200 orders from both new and existing customers, dividing VND 12 million by 200 to get VND 60,000 per order is no longer CAC.

View LTV through the contribution customers leave behind

LTV, or customer lifetime value, needs a clear time frame and customer group. A cautious approach for store owners is to total the contribution of each customer’s completed orders within 90 days after product costs, platform fees, packing, shipping subsidies, discounts, expected return costs and related variable expenses. Compare acquisition costs separately to avoid deducting them twice.

Suppose a customer places two orders within 90 days, each contributing VND 90,000 before acquisition costs. Observed contribution-based LTV is VND 180,000. With CAC of VND 120,000, VND 60,000 remains for fixed costs and other risks. Looking only at the two orders’ VND 600,000 revenue could make a budget increase appear overly attractive.

This is value observed over 90 days, not a promise that the customer will continue buying for years.

Choose the customer cohort and measurement window before comparing

Group customers by first purchase month or acquisition channel. Track returning customers and total cohort contribution after 30, 60 and 90 days. For food purchased weekly, 90 days may reveal a signal. For long-cycle products, that window may underestimate later value.

Hypothetical example with three groups of 100 new customers each: group A has CAC of VND 80,000 and average 90-day contribution of VND 130,000; B has CAC of VND 120,000 and contribution of VND 180,000; C has CAC of VND 160,000 and contribution of VND 150,000. After CAC, A retains VND 50,000, B VND 60,000 and C loses VND 10,000 per customer before fixed costs. Group C needs investigation before more spending.

Compare cohorts with the same observation duration and cost allocation method. A group acquired three weeks ago cannot be directly compared with one that has had three months to repurchase.

High LTV can still put pressure on cash flow

A customer may buy repeatedly but take six months to cover CAC. Meanwhile, the business must still pay for goods, salaries and premises. Beyond total LTV, examine cumulative contribution at each milestone and the first month it exceeds CAC.

Returns, customers who never repurchase and rising service costs can all extend payback time. No fixed LTV/CAC ratio replaces testing against the actual business model.

Use CAC and LTV to choose the next action

If CAC is high but repeat purchasing is strong, examine advertising messages, targeting and new-customer conversion. If CAC is low but customers buy only once, prioritize first-order quality, the post-purchase experience and follow-up offers aligned with the purchasing cycle.

Start with a simple table: cohort ID, channel, acquisition spending, new customers, completed orders and contribution at 30/60/90 days. Once you know which groups genuinely generate money, the next question is how much each order contributes.

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