What is CAC (Customer Acquisition Cost)?
The total cost of acquiring a new customer, including marketing, sales, and related expenses. Calculated as Total Acquisition Costs / New Customers.
Quick Definition
CAC (Customer Acquisition Cost): The total cost of acquiring a new customer, including marketing, sales, and related expenses. Calculated as Total Acquisition Costs / New Customers.
Understanding CAC (Customer Acquisition Cost)
Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, including all marketing and sales expenses. It's calculated by dividing total acquisition costs (marketing spend, sales salaries, tools, etc.) over a period by the number of new customers acquired in that same period. CAC is one of the most important metrics for understanding business efficiency and sustainability.
CAC matters because it directly impacts profitability and growth potential. If it costs more to acquire a customer than that customer will ever spend with you, your business model is fundamentally broken. Understanding CAC helps you make informed decisions about marketing channels, sales processes, and pricing strategies.
The relationship between CAC and Customer Lifetime Value (LTV) is crucial. A common benchmark is that LTV should be at least 3x CAC for a healthy, scalable business. If CAC is too high relative to LTV, you either need to reduce acquisition costs, increase customer value, or both. Monitoring CAC over time reveals the efficiency and scalability of your growth efforts.
Key Points About CAC (Customer Acquisition Cost)
CAC = Total Acquisition Costs / Number of New Customers
Include all marketing, sales, and related overhead in the calculation
The LTV:CAC ratio indicates business health—aim for 3:1 or better
Track CAC by channel to understand which sources are most efficient
CAC typically increases as you scale beyond early adopters
How to Use CAC (Customer Acquisition Cost) in Your Business
Calculate True CAC
Include all costs: marketing spend, marketing salaries, sales salaries and commissions, tools and software, agency fees, and allocated overhead. Be comprehensive—underestimating CAC leads to poor decisions. Calculate monthly or quarterly for trend analysis.
Segment CAC by Channel
Calculate CAC separately for each marketing channel: paid search, organic, referral, outbound, events, etc. This reveals which channels are most efficient and where to invest more or optimize. A blended CAC hides important channel-level insights.
Monitor the LTV:CAC Ratio
Compare CAC to customer lifetime value. If LTV:CAC is below 3:1, focus on either reducing acquisition costs or increasing customer value through retention and expansion. This ratio is often the single most important metric for subscription businesses.
Track CAC Payback Period
Calculate how many months it takes to recover CAC through customer revenue. Shorter payback periods mean faster reinvestment in growth. If payback exceeds 12-18 months, you may face cash flow challenges while scaling.
Real-World Examples
SaaS Company CAC
A SaaS company spends $100K monthly on marketing and $200K on sales (including SDR and AE salaries). They acquire 50 customers monthly. CAC = ($100K + $200K) / 50 = $6,000. With an average customer value of $24,000, their LTV:CAC is 4:1—healthy.
E-commerce CAC
An e-commerce brand spends $50K on paid ads, $10K on influencers, and $5K on email marketing monthly. They acquire 1,000 new customers. CAC = $65K / 1,000 = $65. With average order value of $80 and 30% margin, they need repeat purchases to be profitable.
Channel-Specific CAC
Analysis reveals: Paid search CAC = $150, Organic CAC = $45, Referral CAC = $20. The company increases investment in referral programs and content marketing while optimizing paid search campaigns to improve efficiency.
Best Practices
- Include all direct and indirect costs in CAC calculation
- Calculate CAC by channel, segment, and cohort for actionable insights
- Monitor CAC trends over time to catch efficiency problems early
- Balance CAC optimization with growth—cutting costs may reduce volume
- Consider CAC payback period alongside LTV:CAC ratio
- Benchmark against industry averages but focus on your own trends
Common Mistakes to Avoid
- Underestimating CAC by excluding indirect costs like salaries
- Only tracking blended CAC without channel-level breakdown
- Comparing CAC across different business models inappropriately
- Optimizing CAC at the expense of lead volume and revenue
- Ignoring the time lag between spending and customer acquisition
Frequently Asked Questions
What's a good CAC?
There's no universal 'good' CAC—it depends on your customer lifetime value and business model. The key metric is LTV:CAC ratio, which should be at least 3:1. A $5,000 CAC is great if LTV is $20,000 but terrible if LTV is $3,000.
How do I reduce CAC?
Focus on high-performing channels, improve conversion rates at each funnel stage, increase organic and referral traffic, optimize ad targeting, and improve sales efficiency. Often the biggest gains come from fixing conversion rate problems rather than cutting marketing spend.
Should I include salaries in CAC?
Yes. Include marketing and sales salaries, or you'll dramatically underestimate true acquisition costs. Some companies calculate both 'fully loaded CAC' (all costs) and 'variable CAC' (just direct spend) to understand different aspects of their economics.
How does CAC change as a company scales?
CAC typically increases over time as you exhaust efficient channels and move beyond early adopters. Early customers come from word-of-mouth and organic channels; later customers require more paid acquisition. Plan for CAC increases in your growth model.
What's the difference between CAC and CPA?
CPA (Cost Per Acquisition) often refers to the cost of acquiring a lead or conversion, not necessarily a paying customer. CAC specifically measures the cost of acquiring customers. Be clear about definitions when comparing metrics.
Related Terms
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