What is Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is the average expense a business incurs to attract one new customer, combining all sales and marketing spend over a period, divided by the number of new customers acquired in that period

Formula:

Customer Acquisition Cost = Total Sales & Marketing Expenses / Number of New Customers Acquired

Importance of Customer Acquisition Cost

Optimizing Marketing ROI

By comparing CAC across channels like digital ads vs. events, the company can invest more in cost-effective tactics. If social media campaigns yield CAC $150 while events cost $400 per customer, shifting the budget improves ROI.

Ensuring Profitability

When CAC is significantly lower than CLV, new customers generate net profit. If CLV is $900 and CAC is $260, the ratio (CLV: CAC ≈ 3.5:1) indicates sustainable growth. If CAC approaches or exceeds CLV, the model is unsustainable.

Investor & Stakeholder Insights

Investors often examine CAC and CLV metrics. A healthy CAC relative to CLV signals an efficient growth engine and can affect valuation or funding decisions.

Benchmarking and Trend Analysis

Tracking CAC over time reveals if marketing becomes more or less efficient. Rising CAC may prompt reviewing messaging, targeting, or product-market fit.