CAC, ROAS and customer value: what the numbers mean
A dashboard can show a strong result while leaving the commercial question unanswered. These five terms describe different parts of the picture. Knowing what each includes is more useful than chasing a universal target.
CAC — customer acquisition cost
The cost of gaining a new customer. Divide the acquisition costs you choose to include by the number of new customers acquired over a matching period. State whether that includes only advertising or also agency fees, creative and staff costs. Otherwise two CAC figures may not be comparable.
Illustration: £5,000 in acquisition costs divided by 100 new customers gives a CAC of £50. Compare that with the customer’s contribution, not just their first order’s revenue.
Read more: Every ad platform wants credit for the same sale.
ROAS — return on ad spend
Revenue attributed to advertising divided by advertising spend. A reported 4× ROAS means £4 of attributed revenue for each £1 spent. It does not mean £4 of profit, or prove that all those orders were caused by the advertising.
Illustration: £1,000 of advertising attributed £4,000 of revenue. Product costs, fulfilment and other costs still need to be paid. Different platforms may claim credit for the same order.
Read more: Every ad platform wants credit for the same sale.
LTV — customer lifetime value
An estimate of the value a customer generates over the relationship. Specify whether you mean revenue, gross profit or contribution, and over what period. Revenue-based lifetime value cannot be compared directly with acquisition cost to establish profitability.
Separate observed repeat behaviour from a forecast. A hoped-for second purchase is not the same as cash already earned.
Read more: Every ad platform wants credit for the same sale.
AOV — average order value
Revenue divided by orders over a defined period. Say whether revenue includes tax, delivery, discounts and refunds. A higher average basket is useful only in the context of its costs and the number of orders.
Illustration: £20,000 of revenue from 200 orders produces a £100 average order value. It does not say what those orders contributed.
Read more: A higher conversion rate doesn’t mean the discount won.
attribution
The rules used to assign credit for a sale or other action to marketing touchpoints. Different windows and models can produce different answers. Assigned credit is not the same as proof that an activity caused additional sales.
An advert, a later search and a recovery email may all claim involvement in the same purchase.
Read more: Every ad platform wants credit for the same sale.
Make the definition part of the decision
Before comparing results, agree the period, the population and the costs included. Then decide what action the number should inform. A familiar label is not a substitute for a shared definition.