In order to understand how long it will take to recoup the money spent in the Customer Acquisition Calculation (CAC), first you need to deeper dive into what exactly that number entails.
To come up with an average of $4.20, these are the factors that needed to be considered:
- Total App downloads
- Online advertising Cost (per click)
- Online advertising Cost (per impression)
- Print advertising cost
- Other advertising cost
- In-app conversions (to a la cart paid features)
- In-app conversions (to premium account)
- Number of staff
- Staff salaries
- Other resource cost (servers, office space, etc.)
With all that information combined, you can come up with the basis of your CAC.
Note: this will change EVERY DAY.
Any time you hire new staff, increase server spend, change office space, get more popular – this is a fluid number that you need to be on top of.
The number that will tell you whether it is the right number in the first place is the Lifetime Customer Value (LTV).
Do you have upsell opportunities? Recurring Revenue? Expansion channels? Most of all – what is your customer happiness index?
If your LTV is lower than your CAC, you will never recoup that initial cost.
If it is higher, it is merely a factor of your current conversion rate, which is different for each app.
A good rule of thumb in business is to aim to recoup the value of any single customer within 12 months of acquisition. This seems like forever in mobile apps, where people lose interest immediately, so for games I would shorten that to 3 months, but leave productivity tools at a standard 12 month.
Note: The easiest way to ensure your CAC is a reasonable number is to make sure that your initial user experience is flawless. There are so many apps you are competing against, even one mistake with the UI will lower your conversion rate dramatically, and even affect the happiness index of your LTV.
Originally Posted: https://www.quora.com/How-hard-is-it-to-recover-a-4-user-acquisition-cost-on-a-mobile-app
Originally Posted On: 2016-01-28