Sales Loves MarketingCustomer acquisition cost (CAC) is what it costs, on average, to win one new customer. Add up your sales and marketing spend for a period, divide it by the number of new customers you won in that period, and you have your CAC.
How do you calculate customer acquisition cost?
CAC = total acquisition costs ÷ number of new customers
There are two common versions:
- Simple CAC counts only marketing spend aimed at new customers, such as ads, events and content.
- Full CAC also counts sales and marketing salaries, sales and marketing software, agencies and freelancers, and related overheads.
Use the full version for decisions. In B2B, where sales reps work most deals, leaving their salaries out makes acquisition look much cheaper than it is.
Worked example
A software company spends $30,000 on ads and events and $70,000 on sales and marketing salaries and tools in one quarter. It wins 200 new customers.
- Simple CAC: $30,000 ÷ 200 = $150
- Full CAC: $100,000 ÷ 200 = $500
The same company can report either number, so always say which one you mean.
Why does customer acquisition cost matter?
CAC tells you whether growth pays for itself. On its own it says little. Compared with what a customer is worth, it says a lot.
That comparison is the LTV to CAC ratio: customer lifetime value divided by CAC.
| LTV:CAC | What it suggests |
|---|---|
| Below 1:1 | You pay more to win customers than they are worth |
| About 1:1 | You lose money once the cost of serving customers is counted |
| About 3:1 | A widely used rule of thumb for a healthy business |
| Well above 3:1 | You may be underinvesting in growth |
Investors use CAC to judge whether a company can grow profitably. Marketing and sales teams use it to compare channels and decide where the next dollar should go.
How can you lower customer acquisition cost?
- Improve conversion. Raising the conversion rate of key pages and forms means more customers from the same traffic.
- Shift budget to cheaper channels. Work out CAC per channel, such as paid search, events, partners and organic search, and move budget toward the ones that win customers at the lowest cost.
- Increase customer value. Upsells, add-ons and lower churn raise lifetime value, which improves the ratio even when CAC stays flat.
- Use your CRM well. Track every lead's source and outcome, so you know which campaigns actually produce customers, not just leads.
- Qualify earlier. Time spent by sales on poor-fit leads is part of CAC.
For a longer guide, see customer acquisition cost explained and what is CAC.
Related terms
Frequently asked questions
How do you calculate customer acquisition cost?
Add up what you spent on acquiring customers in a period and divide it by the number of new customers you won in that period. If you spent $50,000 on sales and marketing in a quarter and won 100 customers, your CAC is $500.
What costs should be included in CAC?
A simple version counts only marketing spend. A fuller version also counts sales and marketing salaries, software, agencies and freelancers, and related overheads. The fuller version gives a truer picture, especially in B2B, where sales reps work most deals.
What is a good LTV to CAC ratio?
A ratio of about 3:1, where a customer brings in three times what it cost to win them, is a widely used rule of thumb for a healthy business. At 1:1 or below, you are spending as much or more to win customers as they are worth.