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Customer Acquisition Costs (CAC) Defined

CAC, or customer acquisition cost, is an estimate of how much a business must spend to win a customer. It is a cornerstone metric in modern marketing, especially with the rise of web-based advertising and trackable campaigns. Your customer acquisition cost includes your total sales and marketing costs and is often a good indicator of the overall efficiency of your business.

Successful businesses are in a perpetual state of trying to lower their CAC in an effort to maximize their ROI per conversion. CAC is often used in tandem with LTV (user lifetime value) to help forecast profitability after your customers have engaged with your service or app for a longer period of time.

How to Use it in a Sentence

If your customer acquisition costs (CAC) rise significantly higher than your user’s lifetime value (LTV) then you are not operating a viable business model.

Common FAQs

You can calculate your CAC by dividing your total sales and marketing acquisition expenses in a given time period by the total number of customers you acquired in that same time period.

For example, let’s say your business spent $200,000 in sales and marketing last quarter and you acquired 350 new customers in that same quarter. Using the formula above ($200,000 ÷ 350), we arrive at a customer acquisition cost of $571.

Strong customer acquisition costs vary widely depending on your company’s industry, product, and LTV. On average, technology/software CAC is currently around $400.

There are several ways to lower customer acquisition costs, including user retargeting, boosting retention via multichannel messaging, leveraging affiliate programs, A/B testing, and streamlining ad campaigns to pave a clear path to conversions.