Customer Acquisition Cost
Definition
How much you spend in marketing and sales to win one new customer. Divide total acquisition spend by number of new customers gained.
What is Customer Acquisition Cost?
Customer Acquisition Cost (CAC) measures how much money you spend to acquire one new paying customer. It includes all your marketing and sales costs divided by the number of customers those efforts brought in.
Understanding CAC helps you know if your marketing is profitable.
How to Calculate CAC
Basic Formula
Total marketing and sales costs / Number of new customers
Example:
- Monthly marketing spend: £5,000
- Sales team costs: £3,000
- New customers: 40
- CAC = £8,000 / 40 = £200
What to Include
- Advertising spend
- Marketing tools and software
- Sales salaries and commissions
- Content creation costs
- Agency fees
Is Your CAC Good or Bad?
CAC alone doesn't tell you much. You need to compare it to Customer Lifetime Value (CLV).
| CLV:CAC Ratio | What It Means |
|---|---|
| 1:1 | Breaking even (not sustainable) |
| 3:1 | Healthy, profitable |
| 5:1+ | Very profitable (or underinvesting) |
Reducing CAC
Improve Conversion Rates
If more visitors become customers, your CAC drops. Better landing pages, clearer offers, and faster follow-up all help.
Focus on Better Channels
Some channels deliver cheaper customers. Track CAC by source and shift budget to what works.
Increase Referrals
Referred customers often cost nothing to acquire. Make referrals easy and rewarding.
Retain More Customers
Reducing churn means fewer new customers needed to maintain revenue.
CAC Payback Period
How long until a customer pays back their acquisition cost? If CAC is £200 and monthly profit per customer is £50, payback is 4 months.