Business Strategy
Definition
Customer Acquisition Cost (CAC) is the total cost of acquiring one new customer — including all sales and marketing expenses divided by the number of new customers acquired in a given period.
CAC is calculated by dividing total sales and marketing spend (including salaries, ad spend, software, and overhead) by the number of new customers acquired in the same period. Blended CAC includes all acquisition channels; paid CAC isolates only paid acquisition channels. CAC must be analyzed alongside Customer Lifetime Value (LTV) — the LTV:CAC ratio tells you whether your acquisition economics are sustainable. A ratio above 3:1 is generally considered healthy for SaaS businesses, with payback periods under 12 months as a further benchmark. High CAC is not inherently bad if LTV is proportionally higher, but it requires more upfront capital and is more sensitive to churn.
CAC is one of the first metrics investors examine in any growth-stage fundraise. Companies that don't track CAC by channel often discover that their most visible growth is coming from their most expensive channel — and that their 'growth' is actually burning through capital without building a sustainable business. A marketing consultant or finance advisor can help you calculate, benchmark, and optimize your CAC.