CAC

What it is

Customer Acquisition Cost (CAC) measures how much a business spends, on average, to win one new customer. The basic formula is:

CAC = (total sales and marketing spend) / (number of new customers acquired) over the same period.

The numerator typically includes advertising spend, salaries and commissions for sales and marketing teams, agency and tooling costs, and creative production. The denominator counts only genuinely new customers acquired in that window, not renewals or upsells.

Why it matters

CAC is one of the core unit economics metrics. It tells you whether growth is affordable and sustainable.

• Profitability signal: if CAC exceeds the value a customer generates, growth destroys value.
• Efficiency benchmark: comparing CAC across channels shows where marketing money works hardest.
• Investor scrutiny: CAC, alongside LTV and payback period, is a standard due diligence metric.

CAC is most meaningful when paired with Customer Lifetime Value (LTV). A healthy LTV:CAC ratio is often cited around 3:1, though this varies by industry. Another key companion is CAC payback period: how many months of gross margin are needed to recover the acquisition cost.

How it is used in practice

• Blended vs paid CAC: blended CAC divides all spend by all new customers (including organic); paid CAC isolates customers won through paid channels. Report both to avoid flattering yourself with organic wins.
• Segment by channel and cohort: track CAC per channel (search, social, events, outbound) to reallocate budget.
• Choose the right window: acquisition spend and the resulting customers often lag, so align periods carefully.
• Decide what counts as spend: be explicit about whether salaries, overhead, and tooling are included, and stay consistent.

Worked example

A B2B SaaS company spends the following in one quarter:

• Paid ads: 120,000
• Sales and marketing salaries: 180,000
• Tooling and agency fees: 30,000

Total spend = 330,000. They acquire 150 new customers.

CAC = 330,000 / 150 = 2,200 per customer.

If each customer contributes 900 in annual gross margin and stays 4 years, LTV is 3,600. The LTV:CAC ratio is 3,600 / 2,200 = 1.6:1, below the common 3:1 target. The payback period is 2,200 / (900/12) = about 29 months. This suggests acquisition is too expensive relative to value, prompting the team to cut inefficient channels or raise retention.