Customer Acquisition Cost (CAC) is the total expense a business incurs to gain a new customer. It includes marketing, sales, and any other costs related to convincing someone to buy your product or service.
In today’s data-driven world, understanding CAC isn’t optional—it’s essential. If you’re spending more to acquire a customer than what they’re worth to your business, you’re setting yourself up for long-term loss.
From startups to large enterprises, keeping tabs on your customer acquisition cost helps you grow sustainably, price your offerings correctly, and justify your marketing spend.
What Is the Cost of Customer Acquisition?
The cost of customer acquisition refers to the amount a company spends to convert a lead into a paying customer. This can vary significantly depending on your industry, customer journey, and marketing strategy.
It typically includes:
- Advertising costs (Google Ads, social media, display ads)
- Sales team salaries and commissions
- Marketing software and tools
- Content creation (videos, blogs, landing pages)
- Free trials or discounts offered to new users
This metric is especially useful when paired with Customer Lifetime Value (CLV). A healthy business model often has a CLV to CAC ratio of 3:1, meaning the average customer brings in 3x more revenue than it cost to acquire them.
Why Is Customer Acquisition Cost Important?
Customer acquisition cost metrics give you insight into whether your business is acquiring customers efficiently. It’s more than just a number—it’s a lens into your business health.
Here’s why CAC matters:
- Reveals your marketing ROI: If your CAC is too high, your campaigns might not be worth the investment.
- Helps forecast growth: Lower customer acquisition costs mean more room for growth and experimentation.
- Guides pricing and budgeting: Knowing your CAC helps you price your products and plan your marketing budgets more effectively.
- Benchmarks performance: Comparing your average customer acquisition cost by industry gives you a sense of how you stack up against competitors.
Ignoring CAC is like driving blindfolded—you won’t know when you’re veering off course until it’s too late.
How to Calculate Customer Acquisition Cost
The customer acquisition cost formula is simple:
CAC = Total Marketing and Sales Costs ÷ Number of New Customers Acquired
Let’s break that down.
Example:
Imagine you spent $10,000 on sales and marketing last month and gained 200 new customers.
$10,000 ÷ 200 = $50 CAC
That means you’re spending $50 to acquire each customer.
Pro tip: Always calculate CAC over a specific period (monthly, quarterly, yearly) to get accurate insights.
What’s included in customer acquisition costs?
- Paid ads
- Social media campaigns
- Sales team salaries
- Marketing software subscriptions
- Affiliate commissions
- Cost of producing marketing content
If you’re wondering how to figure out customer acquisition cost for different channels, break it down by platform. Calculate your cost per customer acquisition for Facebook Ads vs. Google Ads, for instance.
This helps you optimize your spending by focusing on the most cost-effective channels.
FAQ: Customer Acquisition Cost
What is a good customer acquisition cost?
There’s no universal number. It depends on your industry and your Customer Lifetime Value (CLV).
However, here’s a rough breakdown of average cost per customer acquisition across industries:
- E-commerce: $45–$100
- SaaS: $200–$1,000+
- Financial services: $175–$300
- Education: $60–$250
A “good” CAC is one where your CLV is at least 3 times higher than the acquisition cost. If you’re spending $100 to acquire a customer, but they bring in $300 over their lifetime, you’re in good shape.
How to lower customer acquisition cost?
High CAC can eat into your profits. Here are strategies to reduce customer acquisition cost:
- Improve your conversion rates: Optimize landing pages and CTAs to turn more visitors into customers.
- Double down on referrals: Word-of-mouth and referral programs cost less than paid advertising.
- Leverage content marketing: Evergreen content like blogs and videos continues to drive traffic long after it’s published.
- Retarget wisely: Use retargeting ads to bring back interested visitors.
- Automate your sales funnel: Use email sequences and chatbots to nurture leads without adding more manual labor.
Reducing CAC is about working smarter, not necessarily spending less.
What is included in customer acquisition costs?
Customer acquisition costs include any expense related to bringing in new customers. That means:
- Digital ads (Google Ads, Facebook Ads, LinkedIn, etc.)
- Influencer partnerships
- Lead magnets (eBooks, webinars)
- CRM and email marketing tools
- Content creation (blog posts, videos, whitepapers)
- Trade shows and events
- Free trials or promotional discounts
Be sure to track all direct and indirect costs when calculating your CAC. That way, your numbers will reflect the true cost of growth.