Customer Acquisition Cost (CAC) is a fundamental business metric that calculates the total average cost of sales and marketing efforts required to acquire a new customer. It is a vital measure of the efficiency and scalability of a company’s growth engine. CAC is calculated by dividing the total expenses incurred on sales and marketing over a specific period by the number of new customers acquired in that same period: Total Sales & Marketing Spend / Number of New Customers. This spend should include all related costs: advertising spend, salaries of marketing and sales teams, software costs, agency fees, and overhead. A low CAC is desirable, but it must always be evaluated in relation to the Customer Lifetime Value (LTV). The LTV:CAC ratio indicates the health and sustainability of the business model; a ratio of 3:1 or 4:1 is often considered healthy, meaning a customer is worth three to four times what it cost to acquire them. A high or rising CAC can be a warning sign that marketing channels are becoming saturated, campaigns are inefficient, or that the business is targeting the wrong audience. Tracking CAC by channel helps identify the most efficient ways to grow.
