Customer Acquisition Cost (CAC)
The total cost of acquiring a new customer, including all marketing and sales expenses.
Definition
Customer Acquisition Cost represents the total investment required to convert a prospect into a paying customer. This includes advertising spend, marketing software, salaries, content creation, and all other costs associated with attracting and converting customers.
CAC is calculated by dividing total acquisition costs by the number of new customers gained during a specific period. This metric is often analyzed alongside Customer Lifetime Value (LTV) to assess business health.
Why It Matters
CAC directly impacts profitability and scalability. Companies with high acquisition costs relative to customer value struggle to grow sustainably. Tracking CAC helps identify which channels and campaigns deliver customers most efficiently.
The LTV:CAC ratio is a critical benchmark—a 3:1 ratio is generally considered healthy, meaning customers generate three times their acquisition cost in lifetime value.
Examples in Practice
A startup spends $50,000 on marketing in Q1 and acquires 100 customers, resulting in a $500 CAC. They target reducing this to $350 through optimization.
A subscription service discovers their paid social CAC is $80 while organic search CAC is $25, prompting increased SEO investment.
An enterprise software company accepts high CAC ($10,000) because average contract values exceed $150,000 annually.