The CUF to CAC ratio measures cash flow at the point of sale
The CUF to CAC ratio measures cash flow at the point of sale
While the CAC Payback Period measures how many months it takes to recoup acquisition costs, the Cash Up Front to Customer Acquisition Cost (CUF:CAC) ratio measures the immediate cash flow impact of signing up a new subscriber.
CUF : CAC
- CUF (Cash Up Front): The total amount of cash a customer pays at the very beginning of their subscription. This includes the first month's fee, any setup or initiation fees, and any payments for an annual plan.
- CAC (Customer Acquisition Cost): The total cost to acquire that customer.
This ratio determines whether your business is a "cash suck" or a "cash spigot" at the moment of growth.
-
CUF:CAC < 1 (Cash Suck): For every new customer you sign, you have a net cash outflow. For example, if your CAC is $100 and you only collect a $20 monthly fee upfront, your ratio is 0.2:1. The more you grow, the more cash you burn. This model almost always requires one of the other funding strategies, like venture capital.
-
CUF:CAC > 1 (Cash Spigot): For every new customer you sign, you have a net cash inflow. For example, if your CAC is $100 and you charge a $199 annual fee upfront, your ratio is ~2:1. Growth generates immediate cash, which can be used to fund further growth.
Achieving a CUF:CAC ratio greater than 1 is the holy grail of subscription business finance. It allows a company to scale rapidly without needing to give up equity to outside investors. This can be achieved by offering discounts for annual prepayments or by adding a mandatory setup fee.