Glossary of Terms

Key Terms Defined

CAC (Customer Acquisition Cost)

The total cost incurred by a business to acquire a single new customer within a specific timeframe. It's a crucial metric for assessing the efficiency and scalability of sales and marketing efforts. Calculated as: (Total Sales Costs + Total Marketing Costs) / Number of New Customers Acquired.

LTV / CLV (Customer Lifetime Value)

A prediction of the total net profit attributed to the entire future relationship with a customer. It helps businesses understand the long-term value of acquiring customers and informs decisions on how much to spend on acquisition. Calculating LTV often involves Average Revenue Per Account (ARPA), Gross Margin, and Churn Rate.

CAC:LTV Ratio

The ratio comparing Customer Lifetime Value (LTV) to Customer Acquisition Cost (CAC). This key performance indicator (KPI) measures the relationship between the cost of acquiring a customer and their projected lifetime value. A commonly cited healthy benchmark is an LTV that is at least 3 times the CAC (3:1), though this can vary significantly by industry and business model.

Churn Rate

The percentage rate at which customers stop doing business with a company during a specific period (e.g., monthly or annually). High churn can severely impact profitability and growth. It's calculated as: (Number of Customers Lost During Period / Number of Customers at Start of Period) * 100%. It's the inverse of Retention Rate.

Retention Rate

The percentage of customers that a company retains over a given period. It's the inverse of the Churn Rate and indicates customer loyalty and satisfaction. Calculated as: ((Customers at End of Period - New Customers Acquired During Period) / Customers at Start of Period) * 100%, or simply 100% - Churn Rate %.

Gross Margin

The percentage of revenue a company retains after accounting for the direct costs associated with producing the goods or services sold (COGS/Cost of Services). It represents the profitability of core operations before considering overhead, sales, marketing, or interest expenses. Calculated as: ((Total Revenue - COGS) / Total Revenue) * 100%.

COGS (Cost of Goods Sold) / Cost of Services

The direct costs attributable to the production of goods sold (for product businesses) or the delivery of services (for service businesses). This includes costs like raw materials, direct labor, and manufacturing overhead, but typically excludes indirect costs like marketing, sales commissions, or general administrative expenses. It's essential for calculating Gross Margin.

ARPA / ARPU (Average Revenue Per Account / User)

The average revenue generated from each customer account or user during a specific period, typically calculated monthly (MRR/Accounts) or annually (ARR/Accounts). It's a key input for calculating LTV, especially in subscription-based businesses like SaaS.

Payback Period

The length of time it takes for a company to recover the cost of acquiring a customer (CAC) through the profit generated by that customer. A shorter payback period is generally preferable as it means the business becomes profitable on new customers faster. Often calculated as: CAC / (Average Revenue Per Account Per Period × Gross Margin %).

Blended CAC

A simple method for calculating Customer Acquisition Cost that includes *all* sales and marketing expenses (personnel, tools, overhead, ad spend, etc.) divided by the total number of new customers acquired across *all* channels (paid, organic, referral, etc.) in a given period. See our Simple Blended CAC Calculator.

Paid CAC

A more specific CAC calculation focusing only on customers acquired through *paid* marketing channels. It typically involves dividing the total spend on paid campaigns (e.g., Google Ads, Facebook Ads) by the number of customers directly attributed to those campaigns. See our Paid Acquisition CAC Calculator.

PAC (Patient Acquisition Cost)

A specialized term used predominantly in the healthcare industry, analogous to CAC. It represents the total cost associated with acquiring one new patient. Factors can include marketing, outreach programs, referral network costs, and administrative expenses related to onboarding. See our Healthcare PAC Calculator.

DAC (Donor Acquisition Cost)

A term primarily used by non-profit organizations, analogous to CAC. It measures the total cost associated with acquiring one new donor, including fundraising campaign expenses, marketing, event costs, and related staff time. See our Non-Profit DAC Calculator.

Understanding these terms is fundamental to effectively using our calculators, analyzing your business's financial health, and making informed growth decisions.