What is Customer Acquisition Cost?
TL;DR
The total cost to acquire one new customer, all marketing and sales expenses divided by number of new customers. CAC = Total Sales & Marketing Cost ÷ New Customers. Compare CAC to Lifetime Value to ensure profitability. High CAC is acceptable if Lifetime Value is higher; problematic if it's not.
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Frequently Asked Questions About Customer Acquisition Cost
What costs should I include in CAC?
Include all sales and marketing expenses: ad spend, marketing salaries, sales commissions, software tools, agency fees, and overhead allocated to marketing/sales. Some businesses include only direct costs; full-loaded CAC includes everything.
What's a good CAC?
Depends entirely on lifetime value (LTV). A common benchmark is LTV:CAC ratio of 3:1 or higher, meaning customers generate 3x+ what you spent to acquire them. Lower ratios signal acquisition cost problems.
How do I lower my CAC?
Improve conversion rates (better landing pages, offers), focus on higher-converting channels, increase referrals (free acquisition), improve targeting to reduce wasted spend, and optimize sales processes to close more leads.
Is CAC the same as CPA?
Similar but different scope. CPA (cost per acquisition) typically measures a specific campaign or channel's cost per conversion. CAC is comprehensive, all costs to acquire a customer. CAC is usually higher when all costs are included.
Should I calculate CAC by channel?
Yes, channel-specific CAC reveals which channels are efficient. However, attribution is tricky for customers who touch multiple channels. Use consistent methodology and understand that some channels (SEO, content) support others.
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