Customer acquisition cost (CAC)
What is customer acquisition cost (CAC)?
Customer acquisition cost is the average amount spent to win one new customer: all marketing and sales costs for a period divided by the customers gained in it. It is the number that tells you whether a channel is affordable, and it only makes sense read against lifetime value.
The formula
CAC = (advertising spend + salaries and fees in marketing and sales + tools) ÷ new customers in the same period.
The most common mistake is to count only the ad budget. The channel then looks cheaper than it is, and the work people do around it disappears from view.
Example
An accounting firm spends €900 a month on Google Ads, €300 on the person who answers enquiries and €50 on software: €1,250 in all. It signs 5 new clients that month. CAC = 1,250 ÷ 5 = €250.
If the average client stays 4 years and pays €100 a month, they bring €4,800 (see lifetime value), and €250 for such a client is cheap. If the same firm counted only the ads, it would see a CAC of €180 and conclude it has more room to grow than it really has.
Why it matters for a business
CAC is the price of growth. Compared across channels, it shows where a customer comes cheapest: often search and referrals, less often cold advertising. Compared with LTV, it shows whether the business can afford to grow at this pace. A common rule of thumb is LTV at least three times CAC, with the cost paid back within a year.
CAC falls not only with cheaper ads. A higher conversion rate on the site and faster answers to enquiries win more customers from the same budget.
What to ask
- Which costs go into CAC: only advertising, or people and tools too?
- What has CAC been by channel over the last three months?
- How many months does it take for a customer to pay back what they cost?
- Do we count a new customer by contract date or by first enquiry?
In the Google Ads accounts we run, we compare CAC with customer value before raising the budget.