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Customer Acquisition Cost (CAC) is the total expense a business incurs to attract and convert a new customer. It includes all marketing and sales costs divided by the number of customers gained during a specific period.
Synonyms: Cost of Customer Acquisition, Customer Acquisition Expense, CAC
Customer Acquisition Cost is calculated by adding up all the costs related to acquiring customers, such as advertising spend, sales team salaries, marketing software, and promotional expenses. Then, divide this total by the number of new customers acquired in the same timeframe. For example, if a company spends $10,000 on marketing and sales in a month and gains 100 new customers, the CAC is $100.
Knowing your CAC helps you understand how much you are spending to grow your customer base. It allows businesses to evaluate the efficiency of their marketing and sales efforts. If the CAC is higher than the revenue generated from a customer, the business may need to adjust its strategies to improve profitability.
Businesses use CAC to set budgets, forecast growth, and measure return on investment (ROI) for marketing campaigns. Comparing CAC with Customer Lifetime Value (CLV) helps determine if acquiring customers is financially sustainable. Lowering CAC without sacrificing customer quality is a common goal for marketing teams.
