GlossaryGrowth & analytics
What is customer acquisition cost (CAC)?
Also called: CAC, cost per acquisition, blended CAC, paid CAC
Definition
Customer acquisition cost (CAC) is the total sales and marketing spend in a period divided by the number of new customers won in that period. It tells you what it costs, on average, to get one paying customer.
Customer acquisition cost (CAC), explained
The basic formula is simple: sales and marketing costs in a period, divided by new customers in the same period. The honest version includes everything: ad spend, tools, content, agencies and freelancers, sponsorships, launch upgrades, and the salaries of people doing sales and marketing, including a fair share of the founder's time if that's where it goes.
Two variants are worth tracking. Blended CAC divides all acquisition costs by all new customers, including ones who found you organically. Paid CAC divides only paid-channel spend by customers from paid channels. Blended CAC looks better when you have organic growth; paid CAC tells you whether ads can scale.
By channel, the picture gets more useful and messier. SEO, launches and directories have mostly upfront costs and long tails: a page written this month may bring customers for years, so its CAC keeps falling. Ads have costs that stop the moment you stop paying. Comparing a channel's CAC after one month is unfair to the slow compounding ones.
CAC only means something next to what a customer is worth. That's why it's almost always paired with customer lifetime value (LTV) and CAC payback period. A $500 CAC is excellent for a product customers pay $200 a month for and keep for years, and ruinous for a $10-a-month app with high churn.
Early on, when you have few customers, CAC is noisy. Track it quarterly, by channel where you can, and treat the trend as the signal.
Why it matters for founders
If each customer costs more to acquire than they'll ever pay you, growth makes things worse. Knowing CAC by channel shows where to spend the next dollar and hour.
Example
A startup spends $6,000 in a quarter on ads, tools and a part-time content writer, and wins 40 customers. Blended CAC is $150. Paid CAC, counting only the $3,000 of ads and the 10 customers they brought, is $300.
Common mistakes
- Leaving salaries and tools out of CAC.
- Judging SEO or content CAC on the first month.
- Looking at CAC without LTV or payback period.
Related terms
- Customer lifetime value (LTV)Customer lifetime value (LTV) is an estimate of the total gross profit a business will earn from a typical customer over the whole time they stay a customer. It's compared with CAC to judge whether acquisition is worth it.
- CAC payback periodCAC payback period is the number of months it takes for a new customer's gross profit to repay the cost of acquiring them. Shorter payback means cash comes back sooner to fund more growth.
- Conversion funnelA conversion funnel is the sequence of steps a person takes from first discovering your product to becoming a paying customer, such as visit, sign-up, activation and purchase, with the percentage who move from each step to the next.
- DistributionDistribution is how a product reliably reaches the people who'll buy it: the channels, audiences, partnerships and assets that put it in front of customers repeatedly, not just once.