Customer acquisition cost
cost per customer
The fully loaded cost of winning one customer, including the salaries of everyone who touched the deal. Compared against lifetime value, it tells you whether growth creates or destroys value.
In practice
You spend $10,000 on sales and marketing in a month and sign five customers. CAC is $2,000, and it is higher than that if you left your own time out.
The common mistake
Comparing CAC to revenue instead of gross margin. If half of what the customer pays goes to delivery, the money available to repay acquisition is half what the headline suggests.
Customer acquisition cost is what you spend to get one new customer. Total sales and marketing spend for a period divided by the customers acquired in it.
Counting it properly
Most people undercount. The honest number includes advertising, the salaries of everyone selling and marketing, the tools they use, agency fees, and the commission paid when a deal closes. If someone spends half their week on acquisition, half their salary belongs in the number.
Founders routinely exclude their own time, which produces a comfortable figure and an unpleasant surprise when they hire someone to replace themselves. If you would have to pay a person to do what you are doing, put the cost in.
Blended CAC divides total spend by all new customers, including the ones who arrived through word of mouth. Paid CAC divides paid spend by the customers it produced. Blended flatters you as long as referrals hold up, and it stops being useful the moment you try to grow faster than referrals allow.
What it has to be measured against
CAC on its own says nothing. The question is always what a customer is worth — lifetime value — and how long you wait to get the money back.
Payback period is usually the more urgent number. A customer who costs $2,000 and pays $200 a month in gross margin takes ten months to repay. Until then, every new customer makes your cash position worse, which is how a growing business runs out of money. See cash conversion cycle and burn rate.
What moves it
CAC rises as you scale, reliably. The cheapest customers are the ones closest to you, and each further increment of growth reaches people who need more convincing.
The levers that actually work are conversion rate, which lowers cost without touching spend, and positioning, which decides how much convincing is required in the first place. A clear answer to what you do and who it is for cuts acquisition cost more than any change to the ad account.
Concept web
Open the full webQuestions
How do you calculate customer acquisition cost?
Divide total sales and marketing spend for a period by the number of customers acquired in it. Include salaries, tools, commissions and agency fees, not only advertising.
What is a good CAC to LTV ratio?
A customer worth three times what they cost to acquire is a common target, but payback period usually matters more. A high ratio that takes two years to repay can still bankrupt you.
Why does CAC increase as a company grows?
The easiest customers are reached first. Each further increment of growth reaches people who are less aware of the problem, less convinced, or harder to reach, so the cost per customer rises.