Customer Acquisition Cost (CAC) represents the expenses linked to acquiring a new customer. Meanwhile, MER (or Return on Advertising Spend - ROAS) is the metric that gauges the ratio of revenue generated to the amount spent on advertising. Both of these metrics serve as fundamental Key Performance Indicators (KPIs) used to assess the Cash Health of an e-commerce business.
- Setting CAC and MER Goals: These objectives should be developed collaboratively with the finance team and should align with a Profit and Loss (P&L) statement, taking into account factors such as cost of goods sold, operating expenses, shipping, taxes, and more. These goals should adhere to the SMART criteria, meaning they should be Specific, Measurable, Achievable, Relevant, and Time-bound.
- Understanding CAC & MER Goals at Break-even: Understanding your CAC/MER targets at break-even, factoring in all costs, and your CAC/MER goal with a desired profit margin (referred to as first-order profitability) is crucial. This approach aids in evaluating your performance effectively.
- Continuous Evaluation: It's essential to periodically reassess CAC and MER goals since external factors such as market conditions, economic fluctuations, and operational expenses can impact these metrics over time.
- Returning Customer CAC: Returning customer CAC quantifies the expense associated with re-engaging existing customers, making it an integral and measurable metric in our analysis.
- LTV (Lifetime Value) CAC: This metric can be found within the Accrual Performance report and takes into account the extended time after the attribution window. It considers the enduring influence of the respective platform, campaign, ad sets, or ads in driving customer conversions, accounting for conversion lag.
- Importance of Communication: Once CAC and MER goals are established, it's crucial to communicate these goals to all relevant teams and stakeholders, including agencies, marketing teams, and content teams. This alignment of efforts is pivotal in driving the business forward toward its strategic targets.
In summary, the establishment, tracking, and clear communication of CAC and MER goals to your entire team are foundational for optimizing the performance of your e-commerce business, forming the basis for overall success.