What do 'CAC' and 'LTV' stand for?
e.g. If I buy $100 of ad views and over all of those ads get 10 new customers, then my CAC is $10. If a customer on average spends $100 over their lifetime (typically defined as 3 or 5 years, but varies per business) on orders that cost me $70 to fulfil, then their LTV is $30 (Edit: as marketing is not included in gross profit).
The LTV is in terms of gross profit not net profit. It's the revenue minus the direct cost of fulfilling that revenue (cost of goods sold), so it would include: products, shipping, packaging, payment fees, staff time for handling, etc. It would not include: marketing, customer support (surprisingly!), R&D or creating the product, fixed costs such as offices, staff, etc.
I'm not quite sure what the best practice is on accounting for salaries of the marketing department. I think you wouldn't typically include full time employees managing marketing channels, but if you outsourced marketing to an agency you probably would account for the all-in cost to acquire customers via the agency, as they are almost their own marketing channel in a way. It really varies though, and I could be wrong on the best practice here.
It makes more sense if you think about it as a function that turns CAC into LTV.
I am not sure about whether the metrics above are benchmarks for CAC based on advertisement alone.
Some products (B2C) are marketing heavy. Others (B2B) are sales heavy. But they both get included
"CAC" stands for "Customer Acquisition Cost." It represents the cost a company incurs to acquire a new customer, including all the costs associated with marketing and advertising.
"LTV" stands for "Lifetime Value." It represents the total net profit a company expects to earn from a customer throughout their entire relationship with the company. This takes into account all the revenue a customer will bring to the company minus any costs associated with serving that customer over their lifetime.
This seems subtly wrong from what I remember (though it's been like 6 years).
Gross profit not net profit.
Lifetime is "lifetime", you set a cap in years, it's not really the "entire relationship".
The latter one isn't as big of a deal because it gets stupid hard to track/measure that long anyways, but the former one is a pretty big deal.