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hey everyone eric here in this video we're gonna breakdown customer acquisition cost by the end of this video you'll understand both how to calculate cac and its variations as well as what digital marketers and venture capitalists are trying to understand when they talk about cac specifically at startups that are scaling rapidly ok lets get started so at a very high level customer acquisition cost we call it cac is just how much the company needs to spend in advertising to get one new customer to buy for their first time and the reason this is important is because if you know what your customer lifetime value is and so this is basically all of the purchases on average will make during their lifetime or their relationship with your company then you can compare that to your marketing costs on that first order to try to figure out what's the maximum we can spend in marketing to bring a new customer into the company and still make money on our relationship so let's say you expect a customer to spend $1000 well then you know you know over a number of years you know how much you can spend in marketing to try to get a new customer so its super super important also you might think that cac is just total marketing costs divided by total customers that's actually completely incorrect so let's walk through this right now and just to jump to the finish before we start first off when people say cac they are really referring to blended cac so we're gonna break that down right here as well as some other cac versions that are important but you need to know that cac is blended cac so here we are first off if you like this content please like this video and subscribe to my channel it would really help me out and i'll keep making content like this okay so to calculate cac you need two things you need your marketing costs which we have here and then you need customer order information so total customers and um we also have total orders and so like i said its not just taking your total marketing costs and dividing it by total customers that's wrong so i'm gonna tell you right now what you actually need to exclude so in marketing there's basically two buckets you have paid advertising so your advertising channels facebook google could be amazon reddit pinterest radio television anything where you pay for uh uh a customer like a new customer to get an ad put in front of them sort of in any medium in any format where customers are advertised to you pay for those placements so that's paid advertising and the other bucket is like other marketing so stuff that's not related to actually putting ads in front of customers or what we could call serving ads these are things like agencies like you'll probably hire like...