One of the most important metrics for B2C companies is customer acquisition cost or “CAC”. One debate is whether the cost rises or falls over time. The argument for rising CAC is the next marginal customer is generally harder to acquire than your last customer. The argument for falling/stable CAC is that as companies get larger, they benefit from scale and brand recognition. We took a look at publicly available data for B2C companies which disclosed CAC, and while there were only three we could find, the data is nonetheless interesting.
- Wayfair’s CAC grew by 12% annually while marketing spend increased 2.3x. Wayfair, an online purveyor of housewares, reported CAC of $45 in Q3 2013 versus $36 in Q3 2011. While that seems like high growth in CAC, it’s nominal when you consider that marketing expense increased from $9mm to $21mm over that same time. Overall, CAC grew at a compound annual growth rate of 12% each year, which is remarkably low given that marketing spend more than doubled over the same period.
- Angie’s List had stable CAC, while tripling marketing spend. Angie’s List, an online review site with memberships, had very little change in CAC from 2009 to 2011 with CAC of $74, $85, and $78. Over the same period, paid memberships went from 411k to 1.1mm and marketing expense rose from $16mm to $56mm. In other words, marketing expense more than tripled but CAC stayed the same.
- Carvana’s CAC declines as customers return. Carvana, which sells cars online, showed their CAC on an annual cohort basis. In other words, they grouped customers by the year that customer was acquired (a cohort) and then look at the revenue that cohort generates over time. Their data shows the cohort gets gradually less expensive to acquire as each cohort matures and buys more cars over time. For instance, the 2017 cohort at the time of their S1 filing had cost the company $3,700 per customer, whereas the 2013 cohort which has had the benefit of an additional 4 years of sales versus the 2017 cohort, has a CAC of $440.
We wish we had more data from public companies, but based on what we do have, it shows that it is possible to dramatically increase marketing spend while seeing marginal or no increase in CAC. The argument for falling/stable CAC prevails, for now.