Customer Acquisition Cost (CAC)

The total cost to acquire a new customer, including all sales and marketing expenses

Overview

Customer Acquisition Cost (CAC) is one of the most important metrics for any business, representing the total cost required to acquire a new customer. This includes all sales and marketing expenses divided by the number of new customers acquired during a specific period.

CAC helps businesses understand the efficiency of their customer acquisition efforts and is crucial for determining the sustainability and profitability of growth strategies. It's particularly important for SaaS and subscription-based businesses where customer lifetime value plays a significant role in business model viability.

Formula:
CAC = (Sales + Marketing Expenses) / Number of New Customers Acquired

Quick Tip

CAC should always be measured alongside Customer Lifetime Value (LTV) to ensure sustainable growth. The ideal LTV:CAC ratio is 3:1 or higher.

Why It Matters

  • Budget Allocation: Helps determine how much to spend on marketing and sales
  • Channel Optimization: Identifies which acquisition channels provide the best ROI
  • Growth Sustainability: Ensures customer acquisition efforts are profitable long-term
  • Investor Relations: Key metric for fundraising and valuation discussions
  • Strategic Planning: Informs pricing strategy and business model decisions
  • Team Performance: Helps evaluate sales and marketing team effectiveness

How to Measure It

To accurately calculate CAC, you need to track all customer acquisition expenses and new customer counts. Here's how to implement this measurement:

Basic SQL Query Example

-- Calculate Customer Acquisition Cost by month
WITH monthly_expenses AS (
  SELECT 
    DATE_TRUNC('month', expense_date) as month,
    SUM(CASE WHEN department IN ('Sales', 'Marketing') THEN amount ELSE 0 END) as acquisition_costs
  FROM expenses
  WHERE expense_date >= '2024-01-01'
  GROUP BY 1
),
monthly_customers AS (
  SELECT 
    DATE_TRUNC('month', created_date) as month,
    COUNT(DISTINCT customer_id) as new_customers
  FROM customers
  WHERE created_date >= '2024-01-01'
  GROUP BY 1
)
SELECT 
  e.month,
  e.acquisition_costs,
  c.new_customers,
  ROUND(e.acquisition_costs / NULLIF(c.new_customers, 0), 2) as cac
FROM monthly_expenses e
JOIN monthly_customers c ON e.month = c.month
ORDER BY e.month;

Advanced CAC Calculation

-- CAC by acquisition channel with cohort tracking
WITH channel_costs AS (
  SELECT 
    channel,
    DATE_TRUNC('month', expense_date) as month,
    SUM(amount) as channel_spend
  FROM marketing_expenses
  WHERE expense_date >= '2024-01-01'
  GROUP BY 1, 2
),
channel_customers AS (
  SELECT 
    acquisition_channel as channel,
    DATE_TRUNC('month', created_date) as month,
    COUNT(DISTINCT customer_id) as new_customers
  FROM customers
  WHERE created_date >= '2024-01-01'
    AND acquisition_channel IS NOT NULL
  GROUP BY 1, 2
)
SELECT 
  cc.channel,
  cc.month,
  co.channel_spend,
  cc.new_customers,
  ROUND(co.channel_spend / NULLIF(cc.new_customers, 0), 2) as cac_by_channel,
  AVG(ROUND(co.channel_spend / NULLIF(cc.new_customers, 0), 2)) 
    OVER (PARTITION BY cc.channel ORDER BY cc.month 
          ROWS BETWEEN 2 PRECEDING AND CURRENT ROW) as three_month_avg_cac
FROM channel_customers cc
LEFT JOIN channel_costs co ON cc.channel = co.channel AND cc.month = co.month
ORDER BY cc.channel, cc.month;

Data Requirements

To accurately track CAC, ensure you have: sales expenses, marketing expenses, customer creation dates, acquisition channel attribution, and employee costs allocated to sales/marketing.

Best Practices

1. Include All Relevant Costs

  • Sales team salaries, commissions, and benefits
  • Marketing team salaries and contractor costs
  • Advertising spend across all channels
  • Marketing tools and software subscriptions
  • Content creation and creative production costs
  • Sales tools and CRM costs

2. Timing Considerations

  • Use a consistent time period (monthly is most common)
  • Consider sales cycle length when attributing costs
  • Account for seasonal variations in both costs and acquisitions
  • Track CAC trends over time, not just point-in-time snapshots

3. Segmentation Strategies

  • Calculate CAC by acquisition channel (paid search, organic, referral, etc.)
  • Segment by customer size or plan type
  • Track blended CAC vs. paid CAC separately
  • Monitor cohort-based CAC to identify trends

4. Benchmark Guidelines

Industry Benchmarks

SaaS/B2B: CAC should be recovered within 12 months
E-commerce: CAC typically 20-30% of first-year revenue
Subscription: LTV:CAC ratio should be 3:1 or higher

5. Optimization Tactics

  • Improve conversion rates at each funnel stage
  • Focus on channels with lowest CAC and highest quality customers
  • Implement referral programs to leverage satisfied customers
  • Optimize onboarding to reduce early churn
  • Use marketing automation to reduce manual sales costs

Related Metrics