What It Means
Customer acquisition cost (CAC) is total sales and marketing spend over a period divided by the number of new customers gained in that same period. Sales and marketing spend includes advertising, commissions and bonuses, the salaries of sales and marketing staff, and related overhead.
How People Say It at Work
- "Our CAC on paid social doubled this quarter."
- "What's the payback on that CAC?"
- "We can't grow if CAC keeps climbing."
The Breakdown
Formula
CAC = sales and marketing spend ÷ new customers acquired, both measured over the same period.
Worked example. A small online shop's costs for one month:
| Cost | Amount |
|---|---|
| Advertising | $2,000 |
| Marketing software | $500 |
| Freelance marketer | $1,500 |
| Total | $4,000 |
The shop gained 80 new customers that month. $4,000 ÷ 80 = $50 CAC.
Benchmark. CAC is usually judged against customer lifetime value (LTV). An LTV to CAC ratio of about 3 to 1 is often cited as a healthy target, particularly for software businesses.
Good to Know
Use the same time window for spend and customers. Counting only ad spend gives a lower number than the true CAC, because salaries, tools and commissions belong in the formula too.
FAQ
What costs go into CAC?
Advertising and marketing spend, sales commissions and bonuses, salaries of sales and marketing staff, and overhead tied to sales and marketing, all for the same period.
What's the difference between CAC and CPA?
CPA (cost per acquisition) can count any conversion, such as a sign-up or a download. CAC counts only new paying customers.
What's a good LTV to CAC ratio?
About 3 to 1 is a commonly cited target, meaning each customer brings in roughly three times what it cost to win them.
Do It in Buhata
Team Space
Track CAC, LTV and payback in a Team Space in Buhata so the whole team sees the same numbers every month.
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Sources
Corporate Finance Institute, "Customer Acquisition Cost (CAC)"; Wall Street Prep, "LTV/CAC Ratio"
Last updated .