Posted this in IB forum, but figured may get some more expertise here:
How does one think about CAC (as well as go about calculating it) for a business with near $0 s&m spend? The company acquired customers by acquiring adjacent businesses.
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Would probably look at the price paid per customer of the acquired company. Or I would look at that CAC of the acquired businesses on a standalone basis.
Interested to hear how other people would approach this
I'll take a stab. I would think AcquiredCo's standalone CAC would be the way to go.
Philosophically, purchase price / customer makes sense as that is what the acquirer paid, but in reality, it has so many other components. I don't know what the practice is re allocating a portion of that to customer contracts.
Interested to hear other views.
It depends upon what you are actually trying to figure out. Is this because you just need to fill out a metric or are you trying to put together a S&M-driven proforma forecast?
For the latter, you would need to really understand product, customers, market and operations for a precise proforma CAC that incorporates strategic synergies. Will there be cross-sell, new market penetration, higher packaged ASPs, etc.
For the former, just use the simple arithmetic of each AcquiredCo CAC as others have suggested. Most use S&M but there is a school of thought that includes COS as well, especially in an rCAC.
Have never seen a business that only acquires customers through M&A, but if that's the only channel then I guess their CAC is simply the cost of the acquisitions. So if they spend $100m acquiring competitors (CAC) and obtain 1k customers, cost per acquired customer is $100k. Then look at lifetime gross profit per customer to get to LTV/CAC.
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