Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, including marketing, sales, and related expenses. It's calculated by dividing total acquisition spending by the number of new customers gained in that period.
CAC is one of the most important metrics for any business. Understanding your CAC helps determine pricing, marketing efficiency, and overall business viability.
Calculating CAC: CAC = Total Sales & Marketing Costs / Number of New Customers
Example: $100,000 spent / 500 new customers = $200 CAC
Types of CAC: - Blended CAC: All customers (organic + paid) - Paid CAC: Only paid acquisition channels - Fully Loaded CAC: Includes salaries, tools, overhead
CAC by Channel: Different channels have different CACs: - Content marketing: Lower CAC, slower results - Paid ads: Higher CAC, faster results - Referrals: Lowest CAC, hardest to scale - Enterprise sales: Highest CAC, highest LTV
CAC:LTV Ratio: The ratio of Customer Acquisition Cost to Lifetime Value should be at least 1:3 for a healthy business. Lower ratios indicate unprofitable customer acquisition.
Reducing CAC: - Improve conversion rates - Invest in organic channels - Optimize ad targeting - Build referral programs - Focus on higher-value customer segments