---
id: "prereq-cac-and-ltv"
type: "prereq"
source_timestamps: ["§ Understand Market Trends"]
tags: ["finance", "sales-metrics"]
related: ["concept-ai-driven-tam-expansion", "person-frank-cespedes"]
reason: "Necessary to understand why SAP was previously locked out of the SME market and why AI was required to unlock it."
sources: ["commercial"]
sourceVaultSlug: "hbr-seg-commercial"
originDay: 5
articleStem: "hbr-foci-64-ai-broaden-customer-base"
sourceUrl: "https://hbr.org/2025/03/how-one-company-used-ai-to-broaden-its-customer-base"
sourceTitle: "How One Company Used AI to Broaden Its Customer Base"
---
# Customer Acquisition Cost (CAC) and Unit Economics

**Prerequisite knowledge.** The article assumes the reader understands why an "in-person consultative sales approach" is "too expensive" for "small order sizes." This requires an implicit grasp of **Customer Acquisition Cost (CAC)** and how it must scale proportionally with the **Lifetime Value (LTV)** of the customer.

**Why it matters:** Without this, the entire logic of [[concept-ai-driven-tam-expansion]] is opaque — you cannot see why SAP was locked out of the SME segment or why lowering cost-to-serve via AI unlocks it. (Related expertise: [[entity-frank-v-cespedes|Frank V. Cespedes]], who studies cost-to-serve economics.)


## Related across articles
- [[prereq-cohort-analysis]]
- [[claim-poor-fit-reduces-profitability]]