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Do you include rent allocation cost to your CAC calculation?

Leen Li's Profile

I am doing CAC and LTV calculation and wonder whether I should include rent allocation to S&M as part of CAC. What is your practise? Thanks!

Answers

Prashant Narasimha
Title: Finance Manager
Company: MMI Llc
(Finance Manager, MMI Llc) |

Hi Leen,

An interesting question - I am approaching your query from an abstract view point – in my current role we adopt a simplistic “identifiable cost” approach.

In my opinion answers to the following questions & rationale will facilitate your decision on inclusion/ exclusion of rent into CAC:

1) What business am I in? Does it require a dedicated customer facing/interaction space (e.g. retail outlets, car showrooms, newspaper subscription) which is different in ambience/ presentation from rest of the “office space”? Is the space allocated / rental cost significant?

Cost of a dedicated space for customer interaction should ideally be part of CAC in the case of retail business/ car showroom, not so in the case of a newspaper subscription business (for its corporate office & printing press).

2) Apply the “relevant costing approach” to further substantiate – is incurring the rent triggered by the customer acquisition process? Is the space absolutely essential to customer acquisition?

E.g. For a newspaper business
Rent of printing press facility and corporate office(s) is not part of CAC whilst rentals of distribution centres, new regional offices, new newspaper kiosks opened in malls/ cafes/ restaurants should be CAC.

Hope this helps.

Leen Li
Title: Head of Finance
Company: Wealthsimple
(Head of Finance, Wealthsimple) |

hi Prashant,

thanks so much!

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

I've always understood CAC to be inclusive of overhead so yes, I would include any rents associated with employing a S&M team.

Leen Li
Title: Head of Finance
Company: Wealthsimple
(Head of Finance, Wealthsimple) |

thank you, Ken!

Ben Murray
Title: Vice President and CFO
Company: Cartegraph
(Vice President and CFO, Cartegraph) |

Quick answer, no. I also don't include in ACS but run a scenario where I bury overhead in ACS and then run calculations on my economies of scale as we add more customers.

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