Customer Acquisition Cost (CAC)

Definition:

You want your business to grow, but at what cost? Customer Acquisition Cost helps companies understand how much money they spend to get a new customer in the door.

What is a good customer acquisition cost CAC?

Most companies benchmark their Customer Acquisition Cost (CAC) against their Customer Lifetime Value (CLV) to see if it’s in a good spot. Don't let your CAC exceed your CLV because that will mean your customer acquisition efforts aren't profitable. But more specifically, an ideal CAC to CLV ratio is 1:3. Now, you might wonder whether it be better if your CAC to CLV ratio was 1:6 or 1:8. Maybe not. That could signal to investors that you’re not capturing more profitable customers who require a higher acquisition cost.

How do you calculate CAC customer acquisition cost?

To calculate your company’s CAC take the amount of money you spend on all marketing efforts (i.e., advertising costs, salaries of your marketers, etc.) and divide it by your total number of customers.
CAC = Total funds spent on sales and marketing / Number of customers