Customer Acquisition Costs might be the most fun business topic because it offers a lot of room for creativity and a CAC near zero makes the unit economics much easier.
One way to think of CAC is like a Nigerian Prince: how do I find my ‘customers’ cheaply so that the resource intensive activities are focused on the ones most likely to ‘buy’.
Via Business Breakdowns:
“This is probably the area where Liberty has done the most in the shortest amount of time, where what’s going on behind the scenes has changed quite a bit. They’re fine with paid TV but also want to make sure there is access to live TV to keep the F1 fan base engaged.” – Arman Gokgol-Kline
There is an opportunity cost to giving away content, but that must be balanced with the customer acquisition costs down the line.
We’ve highlighted some fun CAC ideas like viral marketing (Zillow), email signatures (Hotmail), coupons (Netflix, AOL) and bundling and reframing (McDonald Happy Meal). One addition here is beauty.
This isn’t brand new. One insight that led to AOL CD proliferation was that people will open (direct) mail that feels substantial. Rory Sutherland harks on this too: no one has ever thrown away a substantial 9 x 12 package addressed to them.
This is Todd Synder’s angle. His catalogs are purposefully beautiful and meant to be left out. The aim, said Snyder, is to have the recipient’s partner see it and say something like ‘You would look great in these clothes’. This catalog angle is decades old. Sears supposedly make their catalog’s footprints slightly smaller than the competitors so that when the housewife tidied up, the Sears one came out on top.
It’s easy (but not cheap) to buy customers. It’s not simple (or easy) to have customers find you. But a low CAC has a high value.
Thanks to Tren Griffin for repeating the ideas of CAC and LTV so many times they’re a well-worn mental model.