Thread by @TheProductfolks

All of us as students have studied Lemonade Stand Economics to understand basic/complex concepts of everyday economics. It helped us understand business models, profitability, Capex, etc. It sold a story, made it more relatable, and hence easier to understand. 💭

We bring you a similar series for product management where we will explain basics and complex jargon that are often used in the product scrums. We kick-off this series with a very common term in the product space that is CAC or Customer Acquisition Cost.💸

CAC in essence is the capital a company spends on acquiring customers for their business. That business can be anything from a SaaS company or D2C companies but for the sake of context let’s assume the business is an on-demand delivery company with an app (like Dunzo) 🛵

Customer Acquisition Costs can have various spends which all come under the umbrella of marketing. Which can include but is not limited to:
👉 Social media marketing
👉 Offer deals and promotions
👉 Business partnerships
👉 Branding

CAC can be calculated by dividing all the capital spent by the number of customers acquired in a time period. To get more accurate numbers various attribution techniques can be used. One of the important questions which determine CAC is identifying “Who is a Customer?”

A lot of times this isn't a straight answer and depends a lot on the business model for your startup 🔁. For Dunzo, there can be multiple definitions of who is a customer or what their use case is and these definitions can wildly affect the CAC.

A lot of businesses with different cohorts of users create buckets of users and calculate CAC for each segment. It helps to get a better estimate and also helps them to plan for targetted campaigns for each segment which they can acquire over the short/long term of the business💡

Here is a recommended read to further bolster your understanding of CAC by @neilpatel :neilpatel.com/blog/customer-…

Hope you liked this thread by @itsvaibhavarora. Let us know if you want us to break down any specific framework or topic related to product management in specific 👇