# What are the customer acquisition cost (CAC) and Lifetime Value (LTV) of a free user and a paid user for Amazon Web Services, MuleSoft, and Twilio.

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## What are the customer acquisition cost (CAC) and Lifetime Value (LTV) of a free user and a paid user for Amazon Web Services, MuleSoft, and Twilio.

The short answer is the CAC and LTV for Amazon Web Services, MuleSoft and Twilio has been calculated and arrange in the attached spreadsheet.

All findings and sources can be found in the attached spreadsheet. Below is a short summary of my findings and methodology.

As a note, it was impossible to separate out CAC for free and paid users of AWS, MuleSoft and Twilio, as the way these companies report their financial statements made it impossible to separate the two. As the largest company, I had hoped AWS might report the number of free vs paid users they have, but unfortunately no such data was available in the public domain.

### customer acquisition costs

According to Kissmetrics, customer acquisition cost (CAC) can be calculated by simply dividing total marketing costs by the number of customers. Information for Twilio and MuleSoft was relatively easily gathered from their most recent S-1 and 10-K filings.

* Twilio: For Twilio, sales and marketing expenses are listed at \$4.972 million. We can find the estimated number of customers acquired in the same year (2016) by finding the difference in active customer accounts between 2015 and 2016. While this doesn't account for arbitrage, this is the closest estimate we can find using publicly available figures.
36,606 (2016 customers) - 25,347 (2015 customers) = 11,259 customers acquired in 2016

\$4.972 million / 11,259 customers = \$441.60 CAC

* MuleSoft: Using the same procedure as above, MuleSoft spent \$2.691 million on sales and marketing. Their customer numbers compute as:
1,071 (2016 customers) - 839 (2015 customers) = 232 customers acquired in 2016

\$2.691 million / 232 customers = \$11,599.14 CAC

* AWS: as a much larger company, most of Amazon's 10-K report does not break down their figures for us to easily to calculate CAC. Marketing expenses were calculated using the ratio of 5.49% of operating expenses that Amazon has for its wider business to equal \$467,363,700.

However, finding exact figures for customers acquired in 2016 was much more difficult, as this is not publicly reported. We know that in Q3 2015 they announced they had reached the milestone of over 1 million active users. In the absence of any other usable figures, we can use revenue growth to calculate out rough customer growth from this baseline.

Q3 - Q4 2015 growth: 15.3% = 1,153,000 million active users
Q4 2015 -Q4 2016 growth: 47% = 1,694,910 million active users

1,694,910 million active users (2016) - 1,153,000 million active users (2015) = 541,910 customers added in 2016

\$467,363,700 / 541,910 =\$862.44 CAC

A basic way to calculate LTV is to multiply revenue per customer times expected relationship timeframe in years, then subtract customer acquisition costs.

Here are the calculations:

[\$277,335,000 (revenue)/36,606 customers x 20 years (1/5% churn rate)] - \$441.60 CAC = \$151,082.74 LTV

No information could be found for MuleSoft's churn or loyalty rate, in order to calculate average customer lifespan. Since rival Dell Boomi also reports a 5% churn rate (same as Twilio), we have to make an assumption and apply this to MuleSoft.

[\$187,700,000 (revenue)/1,071 customers x 20 years (1/5% churn rate)] - \$11,599.14 CAC = \$3,493,536.25 LTV

The major difference is that MuleSoft has far fewer customers, as they focus on selling to larger customer accounts.

* AWS:
No information could be found for AWS's churn or loyalty rate, so we've used 5% again as that seems to be a good industry baseline.

\$12,219,000,000 (revenue)/1,1694,910 customers x 20 years (1/5% churn rate)] - \$862.44 CAC = \$143,322.21 LTV

### conclusion

As you can see, CAC and LTV do vary between the three companies. While MuleSoft's CAC is very high, the payoff is substantial as they have the highest calculated LTV by far. Both Amazon and Twilio have substantially more customers, but Twilio's CAC are about half that of Amazon. Amazon's higher costs are likely due to a large number of free users, which may drive medium-term growth as they convert to paid, but only time will tell.

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