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What is CAC?
Customer Acquisition Cost (CAC) measures how much a business spends on average to acquire a new customer, including marketing, sales, and related operational expenses.
Definition
Customer Acquisition Cost (CAC) is the total cost of acquiring one new customer, calculated by dividing total acquisition expenses by the number of new customers gained.
Key Takeaways
- Shows the true cost of acquiring customers.
- Essential for profitability and growth planning.
- Used alongside metrics like LTV (Lifetime Value).
- Helps evaluate marketing and sales efficiency.
Understanding CAC
CAC is a core metric in marketing, sales, and finance. It reveals how much a business spends to convert prospects into paying customers. CAC includes all acquisition-related costs—advertising, staff salaries, tools, commissions, and overhead.
Lowering CAC while maintaining or increasing customer lifetime value (LTV) leads to stronger profitability and efficient growth.
Businesses track CAC by channel, campaign, and customer segment to optimize ROI and marketing performance.
Formula
CAC = Total Acquisition Costs / Number of New Customers Acquired
Real-World Example
A SaaS business spends $50,000 on ads, salaries, and tools in one month and acquires 500 new customers.
CAC = 50,000 / 500 = $100 per customer
Importance in Business or Economics
- Determines marketing efficiency.
- Crucial for pricing and budgeting decisions.
- Impacts break-even points and profitability.
- Drives investor and board-level evaluations.
Types or Variations
- Blended CAC
- Paid CAC
- Organic CAC
- CAC by Channel
Related Terms
- Customer Lifetime Value (LTV)
- Churn Rate
- Marketing ROI
- Conversion Rate
Sources and Further Reading
- HubSpot – LTV:CAC Metrics
- Investopedia – Customer Acquisition Cost: https://www.investopedia.com/terms/c/customeracquisitioncost.asp
- McKinsey – Growth Analytics
Quick Reference
- Goal: Lower CAC, raise LTV.
- Formula: Costs ÷ New customers.
- Best Use: Channel and campaign optimization.
FAQs
Should CAC be lower than LTV?
Yes—LTV should meaningfully exceed CAC for sustainable growth.
Does CAC include salaries?
Yes—if they contribute to acquisition.
Is CAC the same for all industries?
No—CAC varies widely by business model.
