Customer Acquisition Cost
The total cost of acquiring a new customer, including marketing and sales expenses divided by number of customers acquired.
Definition
Customer Acquisition Cost (CAC) measures the total investment required to convert a prospect into a paying customer. This includes all marketing spend, sales team costs, tools, and overhead divided by the number of new customers acquired in a given period.
CAC is fundamental to understanding marketing efficiency and business viability. It must be analyzed alongside Customer Lifetime Value (LTV) to ensure sustainable growth—healthy businesses typically maintain an LTV:CAC ratio of 3:1 or higher.
Why It Matters
CAC directly impacts profitability and determines how aggressively you can invest in growth. Rising CAC signals market saturation or inefficient campaigns, while declining CAC indicates improving marketing effectiveness.
Understanding CAC by channel helps allocate budgets strategically. Some channels have higher CAC but better customer quality, making the holistic view essential for smart marketing decisions.
Examples in Practice
A SaaS company spends $50,000 on marketing and sales in Q1, acquiring 100 customers. Their CAC is $500 per customer.
An e-commerce brand discovers their Facebook CAC is $30 while Google Ads CAC is $45, but Google customers have 2x higher lifetime value—making it the better investment despite higher CAC.