CAC (Customer Acquisition Cost)

Customer Acquisition Cost (CAC) measures how much you spend to acquire each new customer. The basic formula is: CAC = Total Sales & Marketing Spend / Number of New Customers Acquired. If you spent $50,000 on sales and marketing last month and acquired 100 new customers, your CAC is $500.

The tricky part is deciding what to include in "total sales and marketing spend." A fully loaded CAC includes everything: advertising costs, sales team salaries and commissions, marketing team salaries, software tools (CRM, email marketing, analytics), content creation costs, event costs, and even the proportion of office space used by sales and marketing. Some companies calculate a "blended CAC" (all customers, all channels) and a "paid CAC" (only customers from paid channels). Both are useful.

CAC also varies significantly by channel and segment. Your inbound organic leads might have a $50 CAC while outbound enterprise sales might run $5,000+ per customer. Understanding CAC by channel helps you allocate budget to the most efficient acquisition paths. CAC should always be analyzed alongside LTV — a high CAC is perfectly fine if the LTV is much higher, and a low CAC doesn't help if the customers don't stick around.

CAC tells you the economic cost of growth. If your CAC is rising while LTV stays flat, your growth is becoming less efficient — you're paying more for each new dollar of revenue. Investors scrutinize CAC trends over time ("Is it getting cheaper or more expensive to acquire customers?") and by channel ("Which acquisition channels are most efficient?"). A common startup mistake is growing revenue by throwing money at paid acquisition without monitoring whether the unit economics still work. Understanding your CAC ensures you're growing profitably.