Definition

CAC (Customer Acquisition Cost)

CAC is the total sales and marketing cost required to acquire one new customer, calculated by dividing total acquisition spend by the number of customers gained.

CAC only tells the full story when compared against customer lifetime value (LTV) — a high CAC can still be profitable if customers stick around and spend enough over time. A common benchmark is aiming for an LTV-to-CAC ratio of at least 3:1, though the right target varies significantly by business model and sales cycle length.

CAC in practice

If you spend $5,000 in a month on ads, $2,000 on your agency and $3,000 on sales salaries, and win 50 new customers, your CAC is $10,000 ÷ 50 = $200. If each customer brings in $900 of gross profit over their lifetime, your LTV-to-CAC ratio is 4.5:1.

Common questions about CAC

How do you calculate CAC?

Add up all sales and marketing costs for a period, including ad spend, salaries, tools and agency fees, then divide by the number of new customers gained in that period.

What is a good CAC?

It depends on what a customer is worth. A common benchmark is a customer lifetime value at least three times CAC, and recovering CAC within about 12 months for subscription businesses.

How can I lower CAC?

Improve conversion rates on landing pages, cut spend on channels that don't produce customers, follow up leads faster, and build channels with compounding returns, such as SEO and referrals.

What's the difference between CAC and cost per lead?

Cost per lead counts every enquiry, while CAC only counts people who actually become customers. A low cost per lead can still mean a high CAC if few of those leads buy.