Customer Acquisition Cost is the total cost of acquiring a new customer, calculated by dividing all sales and marketing expenses by the number of new customers acquired in a given period. If you spent $50,000 on marketing last month and gained 100 new customers, your CAC is $500. This metric reveals whether your growth is economically sustainable.
How It Works
The basic formula is: CAC = Total Sales & Marketing Costs / New Customers Acquired. Include everything: ad spend, marketing salaries, sales team compensation, tools and software, content production costs, event sponsorships, and agency fees. Some companies calculate blended CAC (all customers) and paid CAC (only customers from paid channels) separately.
CAC varies dramatically by channel. Organic search might deliver customers at $50 CAC while paid social costs $300. Enterprise sales with a dedicated rep might run $15,000+ per customer. Understanding per-channel CAC lets you allocate budget intelligently.
Payback period (how many months until a customer's revenue covers their acquisition cost) is equally important. A $500 CAC with $100 monthly revenue means a 5-month payback. Shorter payback periods mean faster reinvestment into growth.
Why It Matters
CAC determines whether growth creates or destroys value. If acquiring a customer costs more than they will ever pay you, every new customer loses money. The LTV:CAC ratio (lifetime value divided by acquisition cost) should exceed 3:1 for a healthy business. Below that, margins are too thin to sustain operations.
Investors scrutinize CAC trends. Rising CAC suggests market saturation or increasing competition. Declining CAC indicates improving brand awareness, organic growth, or more efficient campaigns.
In Practice
A SaaS company tracks that content marketing produces customers at $200 CAC with 12-month payback, while LinkedIn ads cost $600 per customer with 8-month payback (higher-value customers). They increase content investment for volume while maintaining LinkedIn ads for enterprise prospects who convert to larger plans.
Pro Tips
Always include fully-loaded costs (salaries, not just ad spend) for honest CAC calculation. Track CAC by cohort to identify trends. Improve CAC through referral programs (existing customers acquire new ones cheaply), content marketing (compounds over time), and product-led growth (the product itself drives adoption). Watch for CAC creep as you exhaust early-adopter audiences.