CAC (Customer Acquisition Cost)

Customer Acquisition Cost (CAC) is the total cost of acquiring one new customer, including marketing and sales expenses. It is calculated by dividing total acquisition spend by the number of new customers gained in that period. CAC is used to evaluate marketing efficiency and, together with LTV, to assess unit economics.

Formula

CAC = Total Acquisition Cost / Number of New Customers

Total acquisition cost typically includes advertising spend, marketing team salaries (allocated), sales commissions, and other direct costs of attracting and converting customers. What to include varies by company; consistency matters for trend analysis.

Example

A company spends $120,000 on marketing and sales in a quarter and acquires 1,500 new customers. CAC = $120,000 / 1,500 = $80 per customer. If each customer generates $200 in profit over their lifetime (LTV), the LTV:CAC ratio is 2.5:1, which many consider healthy.

Relationship to LTV

CAC is meaningful when paired with LTV (Lifetime Value). The LTV:CAC ratio indicates how much value each acquired customer generates relative to acquisition cost. A ratio below 1:1 means the company loses money on each customer. Ratios of 3:1 or higher are often cited as targets, though optimal levels depend on industry and growth strategy.

Relationship to ROI

Marketing ROI can be expressed as (LTV − CAC) / CAC, or as the return per dollar spent on acquisition. Lower CAC improves marketing ROI; higher LTV does the same. Reducing CAC while maintaining or improving conversion quality is a common optimization goal.

Caveats

CAC can be distorted by attribution (which channels get credit for conversions), by the time lag between spend and conversion, and by the choice of which costs to include. Payback period—how long it takes to recover CAC from customer revenue—is another important metric; see payback period.