Viral LoopsvsCustomer Acquisition Cost (CAC)

A viral loop is a self-reinforcing mechanism engineered directly into a product that naturally encourages existing users to recruit new users as a byproduct of using the core features. When the Viral Coefficient (K-Factor) exceeds 1.0, every new user brings in more than one additional user, resulting in exponential, zero-CAC growth.

CAC is the total cost of convincing a potential customer to buy your product. This includes all marketing spend, sales team salaries, tools, and overhead directly tied to acquiring new customers. The formula: CAC = Total Sales & Marketing Spend ÷ New Customers Acquired. A company spending $50K/month on marketing and sales and acquiring 100 customers has a $500 CAC. CAC varies dramatically by channel — paid ads might be $300 CAC while organic content is $30. VCs obsess over CAC because it determines unit economics: if CAC exceeds LTV, every customer you acquire destroys value.

The most common trap is bolting on a generic 'Refer a Friend for $10!' program to a product with an inherently single-player experience. If the core value of the product isn't actually improved by having friends on the platform, the friction to refer someone will always overpower a small financial incentive.

The most dangerous mistake is calculating 'blended CAC' by averaging all channels together. This hides the fact that your Google Ads channel might have a $200 CAC while organic has a $5 CAC. Blended CAC at $100 looks fine — but if you scale by doubling ad spend, CAC doesn't stay at $100; it approaches $200 because you're scaling the expensive channel. Always track CAC per channel. The second trap: excluding sales salaries from CAC. If you have 4 sales reps at $10K/month each and they close 40 deals/month, that's $1,000 in 'hidden' CAC per customer on top of marketing spend.

Redesign your core user flow so that inviting someone else is required to extract maximum value from the product. Make the invitation process frictionless, native to the exact moment the user experiences the 'Aha!' moment, and ensure the recipient instantly receives obvious value without hitting a paywall first.

Calculate CAC by channel: Paid CAC, Organic CAC, Referral CAC, Outbound CAC. For each: total spend on that channel ÷ customers from that channel. Kill channels where CAC > LTV/3 (not LTV/1 — you need margin for overhead). Track CAC trend monthly — increasing CAC often means market saturation or competitive pressure and requires immediate investigation.