Customer Acquisition Cost (CAC)
The total cost of acquiring a new customer, including marketing and sales expenses.
Customer Acquisition Cost (CAC) represents the total cost of acquiring a new customer, calculated by dividing total sales and marketing expenses by the number of new customers acquired.
**Calculating CAC:**
CAC = Total Sales & Marketing Costs ÷ Number of New Customers
**What to Include in CAC:**
• Marketing program spend • Advertising costs • Marketing team salaries • Marketing technology costs • Sales team salaries and commissions • Sales technology costs • Related overhead
**CAC Payback Period:**
How long it takes to recover CAC: CAC Payback = CAC ÷ (Monthly Recurring Revenue × Gross Margin)
Healthy SaaS: 12-18 months
**LTV:CAC Ratio:**
Compares customer lifetime value to acquisition cost: LTV:CAC = Customer Lifetime Value ÷ CAC
Healthy ratio: 3:1 or higher
**Improving CAC:**
• Increase conversion rates at each funnel stage • Focus on higher-value customer segments • Improve sales efficiency and velocity • Optimize channel mix toward lower-cost channels • Invest in organic and referral channels • Reduce churn to improve LTV
**Segmented CAC:**
Track CAC by channel, segment, and customer tier to understand true acquisition economics for different customer types.
Related Terms
Cost Per Lead (CPL)
A pricing model where advertisers pay for each qualified lead generated through their marketing campaigns.
Conversion Rate
The percentage of users who complete a desired action out of the total number of visitors.
Multi-Touch Attribution
A method of measuring marketing effectiveness by assigning credit to multiple touchpoints in the buyer journey.