CAC (Customer Acquisition Cost)
The total cost of acquiring a new customer, including all marketing and sales expenses.
Definition
Customer Acquisition Cost (CAC) is a crucial business metric that represents the total cost associated with convincing a potential customer to buy a product or service. This includes research, marketing, and accessibility costs.
CAC is calculated by dividing all costs spent on acquiring customers (marketing expenses, advertising, sales team salaries, etc.) by the number of customers acquired in the same time period.
Why It Matters
- Unit Economics Foundation: Essential for understanding if your business model is viable
- Investment Decisions: Helps determine marketing budget allocation and channel effectiveness
- Investor Interest: Key metric investors analyze to assess scalability and efficiency
- Pricing Strategy: Informs pricing decisions to ensure profitability
How to Calculate CAC
Formula:
CAC = Total Acquisition Costs / Number of Customers Acquired
Total Acquisition Costs include:
- Marketing expenses (ads, content, events)
- Sales team salaries and commissions
- Marketing tools and software
- Creative production costs
- Any other costs directly related to customer acquisition
Real-World Example
SaaS Startup Example: A B2B software company spent $50,000 in total acquisition costs last month (including $20,000 in Google Ads, $15,000 in sales salaries, $10,000 in marketing tools, and $5,000 in content creation) and acquired 100 new customers.
CAC = $50,000 / 100 customers = $500 per customer
This means it costs the company $500 to acquire each new customer. To be profitable, they need to ensure their LTV (Lifetime Value) is significantly higher than $500.