Unit economics
What the next customer costs rather than what the average one cost — the only version of CAC that answers whether to spend more.
Also called Incremental CAC
Formula
Marginal CAC = ΔSpend ÷ ΔNew customers
- ΔSpend
- the increase in spend between two periods or two budget levels
- ΔNew customers
- the increase in new customers over the same comparison
Averages hide the decision. A budget question is always about the increment: what does the next dirham buy? Average CAC answers what every previous dirham bought, and it stays comfortable long after the increment has stopped paying.
This is the single most useful number in a paid-media review and it is almost never on the dashboard, because it requires two periods and a subtraction rather than one period and a division.
- Month 1 — spend
- AED 100,000
- Month 1 — new customers
- 250
- Month 2 — spend
- AED 160,000
- Month 2 — new customers
- 310
Average CAC moved from 400 to 516, which reads as a manageable decline. Marginal CAC on the extra 60,000 is 60,000 ÷ 60 = AED 1,000 — two and a half times the average, and probably above the contribution the customer will ever produce.
A channel is judged healthy on blended average CAC and the budget is raised, which raises the average slightly and the marginal cost enormously. The account keeps reporting an acceptable number while every additional customer is bought at a loss.
The definitions are the easy part. Whether the figure on your dashboard was computed this way is a different question, and usually the more expensive one.