Customer acquisition cost (CAC) is one of the most important metrics in marketing, sales, and business growth. It tells you how much money your company spends to acquire a new customer—and whether your growth strategy is sustainable.

Businesses that ignore CAC often grow quickly at first, only to realize later that they are losing money on every customer they acquire. Companies that understand and optimize CAC, on the other hand, build scalable, profitable growth engines.

This article explains what CAC is, why it matters, how to calculate it accurately, what a “good” CAC looks like, and how businesses can improve it over time.

What Is Customer Acquisition Cost (CAC)?

Customer acquisition cost (CAC) is the total cost a business incurs to acquire a new customer.

In its simplest form, CAC answers this question:

How much does it cost your business to get one new customer?

CAC includes all marketing and sales expenses involved in convincing a prospect to become a paying customer during a specific time period.

Why Customer Acquisition Cost Matters

CAC is not just a marketing metric—it’s a core business health indicator.

Understanding CAC helps businesses:

• Measure the efficiency of marketing and sales efforts

• Evaluate the profitability of growth

• Compare acquisition channels

• Forecast future revenue

• Make informed budgeting decisions

• Avoid unsustainable scaling

If CAC is too high relative to revenue or customer lifetime value, growth becomes fragile—even if customer numbers look impressive.

What Costs Are Included in CAC?

One of the most common mistakes businesses make is underestimating CAC by excluding important expenses.

Typical Costs Included in CAC

Marketing costs

• Paid advertising (search, social, display)

• Content marketing

• SEO tools and agencies

• Social media management

• Influencer partnerships

• Email marketing platforms

• Design and creative costs

Sales costs

• Sales team salaries and commissions

• Sales tools and CRM software

• Demo software

• Travel and event costs

• Sales training

Supporting costs

• Marketing and sales software

• Contractors or agencies

• Attribution and analytics tools

All these costs should be included when calculating CAC accurately.

The Basic CAC Formula

The most commonly used CAC formula is:

CAC = Total sales and marketing costs ÷ Number of new customers acquired

Example:

If a company spends:

• $50,000 on marketing and sales in one month

• Acquires 500 new customers

Then:

CAC = $50,000 ÷ 500 = $100 per customer

This means the company spends $100 to acquire each new customer.

Choosing the Right Time Period for CAC

CAC should always be calculated over a specific time period, such as:

• Monthly

• Quarterly

• Annually

The time period must match:

• The cost window

• The customer acquisition window

For businesses with long sales cycles (especially B2B), CAC calculations may lag behind spending. In these cases, it’s important to align costs with when customers actually convert.

CAC by Channel

CAC becomes far more powerful when broken down by acquisition channel.

For example:

• Paid search CAC

• Paid social CAC

• SEO CAC

• Referral CAC

• Email marketing CAC

• Partnerships CAC

Channel-level CAC allows businesses to:

• Identify high-performing channels

• Cut inefficient spending

• Reallocate budget strategically

• Scale what works

Customer Acquisition Cost vs Cost Per Acquisition (CPA)

CAC is often confused with CPA (cost per acquisition), but they are not the same.

CPA usually refers to:

• The cost to generate a specific action (lead, signup, install)

CAC refers to:

• The cost to acquire a paying customer

A campaign may have a low CPA but still result in a high CAC if:

• Leads don’t convert well

• Sales cycles are long

• Lead quality is poor

CAC provides a more complete picture of business performance.

What Is a “Good” Customer Acquisition Cost?

There is no universal “good” CAC. What’s considered healthy depends on several factors.

Factors That Influence a Good CAC

• Industry

• Business model (B2B vs B2C)

• Pricing structure

• Customer lifetime value (LTV)

• Gross margins

• Growth stage

A $20 CAC might be terrible for a $15 product—but excellent for a $2,000 subscription.

CAC and Customer Lifetime Value (LTV)

CAC should always be evaluated alongside customer lifetime value (LTV).

LTV measures:

• How much revenue a customer generates over their lifetime

A common rule of thumb is:

LTV should be at least 3x CAC

This means that for every dollar spent acquiring a customer, the business earns three dollars in return over time.

We’ll cover LTV-to-CAC ratios in depth in a later article, but the key takeaway is simple: CAC alone is meaningless without LTV.

CAC Benchmarks by Business Type

While benchmarks vary, general patterns exist.

B2C Businesses

• Typically lower CAC

• High volume

• Short sales cycles

• Lower price points

B2B Businesses

• Higher CAC

• Longer sales cycles

• Fewer customers

• Higher contract values

SaaS Companies

• CAC varies widely

• Subscription revenue offsets acquisition costs over time

• Payback period becomes critical

The goal is not the lowest CAC—it’s the most efficient CAC relative to revenue and retention.

CAC Payback Period

Another key concept related to CAC is the payback period.

This measures:

• How long it takes to recover CAC through customer revenue

Shorter payback periods improve:

• Cash flow

• Scalability

• Investor confidence

Many SaaS companies aim for a CAC payback period of 12 months or less.

Common CAC Calculation Mistakes

Many businesses miscalculate CAC due to:

• Excluding salaries and overhead

• Ignoring sales costs

• Counting leads instead of customers

• Using mismatched time periods

• Failing to account for delayed conversions

These mistakes often lead to overly optimistic growth projections.

How to Reduce Customer Acquisition Cost

Reducing CAC doesn’t always mean spending less—it means spending smarter.

Effective ways to reduce CAC include:

• Improving conversion rates

• Optimizing onboarding and activation

• Investing in organic channels like SEO

• Improving targeting and messaging

• Strengthening referral programs

• Retaining customers longer

• Using data-driven experimentation

Small improvements across the funnel can significantly lower CAC over time.

CAC and Business Growth Stages

CAC expectations change depending on company stage.

Early-Stage Startups

• CAC may be high initially

• Focus on learning and validation

• Efficiency improves over time

Growth-Stage Companies

• CAC optimization becomes critical

• Scaling inefficient channels becomes dangerous

Mature Businesses

• CAC stabilizes

• Focus shifts to incremental improvements and retention

Understanding where your business sits helps set realistic CAC goals.

CAC and Investor Expectations

Investors pay close attention to CAC.

They often evaluate:

• CAC trends over time

• LTV-to-CAC ratios

• Payback periods

• Channel diversification

Strong CAC metrics signal disciplined growth and long-term viability.

Final Thoughts

Customer acquisition cost is more than a metric—it’s a lens through which you can evaluate the health, efficiency, and scalability of your business.

Understanding CAC helps you:

• Spend smarter

• Grow sustainably

• Avoid unprofitable scaling

• Build a business that lasts

When CAC is measured accurately and optimized continuously, it becomes a powerful driver of long-term success.