Longevity Network
  • Aug 23, 2017
  • Jeffrey Fry, CEO/President

Q: Why do investors care so much about CAC (cost of customer acquisition)?

I totally agree with Nick’s assessment below. Low CAC is vital on how fast you can grow, and actually, as you get larger, the CAC should get less. But also to the point, when you can prove a low CAC, most investors will not believe you, so be prepared to just walk away.

There is a lot of data behind this concern. For those few dream-come-true unicorns out there, CAC is almost always extremely low. This is essentially because the product or service was so compelling and so perfectly met a widespread need (think Uber) that word of mouth from current users produces an unending, rapid stream of new customers with absolutely zero capital output on the part of the company.

This goes hand in hand with another insight shared by Alex Morgan in his Investor Spotlight for The Longevity Network: most startups tend to dramatically underestimate the sales and marketing effort and budget. It follows that, if you can walk into a pitch and outline an unusually low CAC, it shows investors a) that you understand how important it is and b) that your sales and marketing efforts are likely to require far less capital than most other startups. This leaves more money for ROI.