For those unfamiliar, CAC stands for Customer Acquisition Cost. You calculate it by adding up all the money you spent on marketing in a particular time period and dividing it by the number of customers you acquired in that same time period. If you spent $1000 on marketing and acquired 100 customers, you have a $10 CAC.
The key word, of course, is "customer." Customers are often defined as "a person or organization that buys goods or services from a store or business." The key word in that definition, of course, being "buy."
Many founders prefer to calculate CAC a different way - by adding up all the money they spent on marketing and then dividing it by the number of signups they had. It's almost impossible to have zero churn from signup to paying (aka becoming a customer) and so the CAC always ends up lower when you calculate it this way.
The thing is, CAC doesn't exist in a vacuum. The entire point of CAC is to compare it to another metric: LTV (lifetime value). This is the estimate of the amount of money you can expect a customer to pay you over the course of their relationship with your company. If you charge $5/month and you think users will stick around for 6 months before churning, their lifetime value is 5 * 6 - $30.
The equation is simple from here: if your CAC is higher than the LTV of a customer, you'll lose money. If your CAC is lower than the LTV of a customer, you'll make money (well, maybe: eventually you have to factor in the built in costs of having a user at all, but we won't worry about that now).
If your CAC is higher than your LTV (or even getting close to your LTV) you want to know that as fast as possible. Massaging the numbers to get your CAC lower will only serve to give you a nasty surprise in the future when you can't figure out where all your money is going.
You likely won't fool investors with this trick either. If they're suspicious of your CAC they'll just ask you enough questions about your numbers so they can calculate it themselves. Might as well be honest upfront about it.
If you've just recalculated your CAC and it's higher than you expected, don't worry. Knowing that there's a problem is the first step in finding a solution. If you need a little extra help, I'm always here - schedule 20 minutes with me today.