Customer acquisition cost

Customer acquisition cost (CAC) is the cost of persuading a customer to purchase a product or service. As an important business metric, customer acquisition costs are often related to customer lifetime value (CLV or LTV). ^[1]

With CAC, a company can estimate how much they are spending on acquiring each customer. It shows the money spent on marketing, salaries, and related expenses to acquire a customer. For example, a company spending $500 to acquire a new customer with an expected LTV of $300 means the company is losing an estimated $200 per customer acquired.

CAC, combined with LTV is a frequently compared metric, particularly for SaaS companies. They can manage their expenses, see their growth, predict their future moves, and expand if the business allows. ^[2]

Calculating customer acquisition costs

There is both a simple and a complex method for calculating acquisition costs.

Simple method

The simple method divides the total marketing costs to acquire new customers by the total number of customers acquired in a defined period. ${\displaystyle CAC={\frac {MCC}{CA}}}$

• CAC = Customer Acquisition Cost
• MCC = total marketing cost for acquiring new customers
• CA = total customers acquired

Complex method

In addition to the costs incurred in marketing, the complex method includes sales and marketing wages, software costs for sales and marketing, all additional professional services such as designers, consultants, etc., as well as other overhead costs. ${\displaystyle CAC={\frac {MCC+W+S+PS+O}{CA}}}$

• CAC = Customer Acquisition Cost
• MCC = total marketing cost for acquiring new customers
• W = wages connected with sales and marketing
• S = all the marketing and sales associated software cost (inc. E-Commerce-Platform, automated marketing, A / B-testing, analytics etc.)
• PS = every additional professional service in marketing / sales (Designer, consultant, etc.)
• O = other overheads associated with marketing and sales
• CA = total customers acquired

Customer acquisition costs in relation to customer lifetime value

Customer lifetime value expresses the monetary value that a customer is worth to the company in the course of a customer relationship. The LTV to CAC ratio (LTV / CAC) can be used to gauge marketing efficiency: ^[3]

• 1:1 – The company loses money (if the cost of providing the service is taken into account)
• Less than 1:1 – The company gets into financial difficulties because more is paid for customers than they are worth.
• 3:1 - A very good level because the customer relationships are solid and customers are acquired for the right price.
• Higher than 3:1 – The company has untapped growth potential to acquire customers.

Customer acquisition costs in the environment of start-ups and venture capital

In the approach and review phase of venture capital companies to start-ups, the CAC and LTV ratios can be of great importance depending on what type of market or product is produced.

See also

• Customer acquisition management
• Customer lifecycle management
• Performance metric
• Controlling
• Marketing
• Sales
• Venture capital
• Software as a service (SaaS)

References

• Chen, Pei-Yu (Sharon); Hitt, Lorin M. (200), Switching Cost and Brand Loyalty in Electronic Markets: Evidence from On-line Retail Brokers, Proceedings of International Conference on Information Systems
• Natalie, Luneva (2020-07-28). "Must Track SaaS Metrics to Grow Your Software Startup in 2020".
• Domingos, Pedro; Richardson, Matt (2001), Mining the Network Value of Customers (PDF), Proceedings of the Seventh International Conference on Knowledge Discovery and Data Mining, ACM Press, pp. 57–66

• Botteri, Philippe (2008-03-02). "Measuring sales and marketing effectiveness of SaaS companies: The CAC Ratio".
• Botteri, Philippe (2008-11-02). "One Number to Manage Your SaaS Sales &Marketing Spend: The CAC ratio" (PDF). Bessemer Venture Partners. Archived from the original (PDF) on 2013-07-17. Retrieved 2013-01-21.
• Skok, David (2010-02-17). "SaaS Metrics – A Guide to Measuring and Improving What Matters".
• Hsu, William (2012-08-23). "New Rules For E-Commerce". Forbes.com.
• Haden, Jeff (2011-12-27). "4 Business Metrics You Can't Afford to Ignore". Inc.com.
• Gruher, Scott (2011-09-24). "Go to Market Strategy: How Much Are Your Customers Worth?". Archived from the original on 2016-01-24. Retrieved 2013-01-21.
• Rotem, Eran (2021-08-31). "Customer acquisition cost (CAC)—a management concept worth knowing." All about the terms CAC, CLV, ROI, TCO, MAC, and SAC. Adcore.
• Rouse, Margaret (March 2010). "Customer acquisition cost". TechTarget. Archived from the original on 2018-03-20. Retrieved 2013-01-21.

Specific

1. "Customer Acquisition Cost (CAC) - A Management Concept Worth Knowing". Adcore. 2021-08-31. Retrieved 2021-09-02.
2. "Natalie Luneva: Growth and Team Performance Coaching for Bootstrapped SaaS Founders". www.natalieluneva.com. 28 July 2020. Retrieved 2020-07-28.
3. Leader, Richard (20 March 2025). "Customer Acquisition Cost (CAC): The Growth Metric Every Start-up Needs to Track" . Retrieved 18 November 2025.