Investing In Customer Acquisition
One of the most common challenges that business owners have is inconsistent sales.
In response, many businesses do what feels logical. They spend more money on sales and marketing. They hire agencies, run ads, launch new campaigns, or start pumping out more content. But the results don’t always follow. Why?
Because without a clear understanding of key metrics like Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV), that spend often becomes guesswork. And when you're guessing, it’s easy to either overspend and hurt your margins, or underspend and hold back your growth.
Consistent Sales Start With Data, Not Just Activity
Before throwing more money into sales and marketing, you need to ask a few simple but powerful questions:
What does it cost us to acquire a customer?
What is that customer worth to us over time?
How much can we afford to spend to acquire more customers profitably?
These questions give you a framework to make smarter sales and marketing decisions. Without the answers, it’s all too easy to chase shiny tactics instead of building a sustainable revenue engine.
What Is Customer Acquisition Cost (CAC)?
Your Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer. That includes:
Sales team wages or commissions
Marketing spend (ads, software, contractors, design, etc.)
Promotional spend (discounts, giveaways, one-time offers)
Time spent by the founder or internal team
Any other overhead directly tied to winning new business
Divide this total by the number of new customers acquired over that same period. That’s your CAC.
For example:
If you spent $10,000 on sales and marketing in a month and acquired 10 new customers, your CAC is $1,000.
What Is Customer Lifetime Value (CLV)?
Customer Lifetime Value (CLV) tells you how much revenue a customer is likely to generate over the full duration of their relationship with your business.
It answers the question: "How much is a customer worth to us?"
Here’s a simple way to calculate it:
CLV = Average Purchase Value × Purchase Frequency × Customer Lifespan
Example:
Average purchase = $500
Purchases per year = 2
Average customer stays = 3 years
CLV = $500 × 2 × 3 = $3,000
This means each customer is worth approximately $3,000 over their lifetime.
How Do You Know If Your CAC Is Too High?
Your Customer Acquisition Costs (CAC) doesn’t mean much unless you compare it to something like the Customer Lifetime Value (CLV).
As a rule of thumb, a 3:1 ratio is usually healthy. That means if it costs you $1,000 to acquire a customer, you want to be earning $3,000 or more in lifetime revenue from them. If the ratio is closer to 1:1, you’re either:
Overspending to acquire customers
Charging too little
Or not retaining customers long enough to recover the cost
It’s also important to factor in your gross margin. If you're earning $3,000 in revenue from that customer but only keeping $600 after costs, your $1,000 CAC is clearly not sustainable.
How Much Should You Spend on Customer Acquisition?
There’s no one-size-fits-all answer, but here’s a practical approach:
Know your numbers. Get clear on your CAC, gross margins, and CLV.
Work backwards. How many new customers do you want to acquire? Multiply that by your CAC to estimate the required sales/marketing spend.
Set a benchmark. If your CAC is too high, review your sales process and marketing funnel before increasing spend.
Test and refine. You don’t need to commit a huge budget from the outset. Start small, track results, and scale what works.
The Risk of Not Investing
Here’s the flip side: some business owners hesitate to spend at all because they don’t know what’s working. So they stay in limbo with no major investment, no clear strategy, no momentum.
They rely on word of mouth, wait for referrals, or dabble in organic content without any structure behind it. And while these can be great channels, they rarely deliver predictable or scalable results on their own.
Not investing in sales and marketing or doing so without a clear strategy can be just as risky as overspending. It keeps your growth flatlined and your revenue unpredictable.
What To Do Next
If you want consistent sales, you need consistent systems and that starts with understanding your metrics.
Here’s a simple roadmap:
Track your CAC monthly. Look at your total spend vs. new customers.
Measure CLV. What’s your average customer spend over 6–12 months?
Assess the ratio. Is it profitable? Are you spending in line with what your margins allow?
Decide your next move. Maybe it’s refining your offer, adjusting pricing, or improving lead conversion before increasing ad spend.
And if you’re not sure where to start or you’re making decisions without a clear view of the numbers that’s exactly where a Virtual CFO can step in and help.
Final Thought
Sales and marketing should never feel like a shot in the dark. When you know your CAC and CLV, you can spend with confidence and scale in a way that’s sustainable, not stressful.
At Olive Business Partners, we help businesses make smart, data-led decisions about sales, marketing, and growth strategy. If you're ready to get clarity on the numbers behind your next growth move, let’s talk.