Customer acquisition cost or CAC measures the full cost of acquiring a new customer. This is an extremely useful metric to monitor the costs associated with customer acquisition and to provide a benchmark on how well a company's sales and marketing efforts are working.

Put another way, if CAC exceeds revenues over a long period of time, a company will run out of money and go out of business.

CAC is a very important metric and is used as a major benchmark by VCs when comparing potential investment opportunities.

A common error is failing to include all the costs incurred in customer acquisition, such as referral fees, customer credits, discounts, and others.

It needs to be a full accounting of what it is costing the company to acquire each new customer.

VC funds find it useful to calculate blended CAC and then show the paid and unpaid CAC breakdown. A blended CAC reflects the cost across all sales and marketing channels, whereas a paid CAC includes only the sales or marketing channels a company purchases, for example, the cost of advertising on Facebook.

Unpaid CAC is useful in evaluating the viability of a business and whether a company can scale up its customer acquisition budget profitably.

Lifetime value or LTV measures the present value of the future net profit from a customer over the length of the client lifetime relationship. VC funds use this calculation to determine the net value a company generates per customer after accounting for the costs to acquire that customer.

LTV is one of the key metrics for VC investors.

It is an especially meaningful metric because it has an impact on how much a company is or should be spending on sales and marketing expenses. New customers are critical for the growth of any SaaS business and understanding the value that an existing customer contributes helps the company better understand how much they need to spend on adding new customers and growing their customer base, determining performance and customer benchmarks and developing marketing strategies that improve customer retention.

Lifetime value to customer acquisition costs or the LTV to CAC ratio is a calculation that measures the return on investment of each dollar that the company spends in order to acquire a new customer. Tracking this ratio over time informs VC investors how much a company spends compared to how much the company is getting in return, and if the ratio is too high or too low, a company can adjust their marketing execution strategy.