Customer acquisition cost (CAC) is what you spend on marketing and sales to win one new customer; customer lifetime value (LTV) is what that customer brings back over the whole relationship. This page works out both, the ratio between them, and your Net Promoter Score (NPS) from customer satisfaction survey results. Each metric has its own card, and shared inputs carry across the tabs. The worked examples follow a food distributor in Saudi Arabia that sells to grocery stores through field reps.
How to calculate customer acquisition cost (CAC)
Add up what you spent in a period on advertising, campaigns and the sales team, then divide by the number of new customers won in the same period. Do not divide by all active customers: your existing customers did not cost you this spend.
CAC = (Marketing + Sales cost) ÷ New customers
How to calculate customer lifetime value (LTV)
Multiply average order value by the customer's orders per year, then by the years they stay a customer. That gives the revenue you expect from them. Revenue cannot be set against a cost directly, so by default the calculator multiplies it by gross margin, turning LTV into profit you can put next to CAC.
LTV = Order value × Orders per year × Years × Gross margin
If you do not know how long customers stay but you know what share you lose each year, switch on "Lifespan from churn rate" and enter the churn rate: lose a quarter of customers a year and the average customer stays 4 years.
LTV to CAC ratio
The ratio shows how many riyals of profit come back for every riyal spent winning the customer. In the example it is 1,350 ÷ 500 = 2.7. Below 1, a customer costs more than they return. Marketing writers often quote a ratio of about 3 to 1 as a rule of thumb, but it varies by sector and growth stage, and most of that writing concerns subscription businesses outside Saudi Arabia rather than a distributor selling on credit, so use it for comparison, not as a verdict. Next to the ratio the calculator shows how many months a customer's margin takes to pay back the cost of winning them: 13.3 months in the example.
How to calculate Net Promoter Score (NPS)
Ask customers, "How likely are you to recommend us to a friend or colleague?" on a scale from 0 to 10. Those answering 9 or 10 are promoters, 7 or 8 are passives, and 6 or below are detractors. Subtract the percentage of detractors from the percentage of promoters, giving a score between −100 and +100. Passives are left out of the subtraction but counted in the total.
NPS = % Promoters − % Detractors
Any score above zero means promoters outnumber detractors. What counts as a good score differs widely between sectors and markets, so compare against your own previous score first, and read the detractors' comments before the number itself.
Common mistakes with customer metrics
- Working out CAC from ad spend alone and leaving out rep salaries and visit costs.
- Comparing an LTV calculated on revenue with acquisition cost, which flatters the ratio by the size of the margin.
- Dividing a quarter's spend by one month's new customers, or the other way round.
- Calculating NPS from a very small sample, such as twenty responses, and reading meaning into a one- or two-point move.
What to do after the result
Run the metrics for each acquisition channel separately (field reps, advertising, referrals), because the average hides the channel that loses money. Download the figures in Excel to keep with the monthly sales report; the inputs sit in cells and the metrics are formulas that update when you change them.
When you cannot tell which rep wins the customers
CAC and LTV depend on knowing who won each customer, how much they ordered and when they stopped. When orders live in reps' notebooks and invoices in another system, the metrics get estimated once a year. At Microtec we offer distributors and wholesalers in the Kingdom O-Orange for field sales and distribution. Put one rep's customers on the trial for three months and see how much each orders and when they go quiet.