Is the customer acquisition cost higher than the customer lifetime value?

This needs to be looked at in stages; you can't generalize.

Think of it this way: you've opened a small noodle shop.

Customer Acquisition Cost (CAC): This is how much you spend to get a new customer to come into your shop and eat. For example, you printed flyers for 100 yuan, distributed 1000, and finally 10 new customers came. Then the acquisition cost for each new customer is 10 yuan.

Customer Lifetime Value (LTV): This is the total amount of money a customer spends in your shop, from their first visit until they stop coming altogether, and how much profit you make from them.

Now, back to your question: Is the acquisition cost higher than the customer's value?

1. In the early stages of a startup, it's very likely.

Your noodle shop just opened, and no one knows about it. To attract the first batch of customers, you might offer "half-price for the first bowl of noodles" or "a free side dish." Suppose a bowl of noodles sells for 20 yuan, with a cost of 10 yuan, so you earn 10 yuan. But to get them in, you gave away a 5-yuan side dish, plus the cost of distributing flyers. The "acquisition cost" you spent on that first customer might be as high as 15 yuan. They only spent 20 yuan this time, and you only earned 5 yuan. From this perspective, the acquisition cost (15 yuan) is indeed much higher than the profit you made from them this time (5 yuan).

In the early days of internet companies, this is called "burning money for market share." Everyone is losing money to gain publicity, first attracting users with discounts, expanding their scale, and hoping they will continue to use your product in the future.

2. But in the long run, it must not be.

If that customer, because your noodles taste good and the environment is clean, comes to eat a bowl every week, they might spend over 1000 yuan with you in a year. Then the 15 yuan you spent to get them through the door initially seems insignificant. At this point, their "Customer Lifetime Value" far exceeds the "Customer Acquisition Cost." This is a healthy business.

Conversely, if all customers are just looking for a small discount, and never come back after eating your half-price noodles, then you lose money with every customer you acquire. The more customers you attract, the faster you lose money, and your noodle shop will soon go out of business.

To summarize:

• When a company is just starting or a product is newly launched, a Customer Acquisition Cost higher than the (single-transaction) Customer Value is a normal phenomenon, considered an investment.
• However, if in the long run, a customer's total value still cannot cover the cost of acquiring them, then this business model has a major problem. It indicates that your product lacks the ability to retain people, or your customer acquisition methods are too expensive.

Therefore, everyone in business, especially internet entrepreneurs, constantly calculates these two figures, trying every possible way to reduce customer acquisition costs while increasing subsequent customer spending (i.e., customer value). The relationship between these two numbers largely determines whether a company can survive.