Customer Acquisition Cost (CAC): Complete Guide
What is Customer Acquisition Cost (CAC)?
Customer Acquisition Cost (CAC) is the total expense incurred to acquire a new paying customer, including all marketing and sales costs divided by the number of customers acquired in a specific period. It’s one of the most critical metrics for startups to track and optimize.
How Customer Acquisition Cost Works
CAC helps startups understand the efficiency of their marketing and sales efforts. A lower CAC means you’re acquiring customers more cost-effectively, while a high CAC might indicate inefficient marketing spend or targeting the wrong audience.
For venture-backed startups, CAC is often evaluated alongside Customer Lifetime Value (LTV) to determine if the business model is sustainable. The general rule is that LTV should be at least 3 times higher than CAC.
How to Calculate CAC
Formula: CAC = (Total Marketing + Sales Costs) ÷ Number of New Customers Acquired
Example Calculation:
- Marketing spend: $10,000
- Sales team costs: $5,000
- New customers acquired: 150
- CAC = ($10,000 + $5,000) ÷ 150 = $100
What to Include in CAC:
- Advertising spend (Google Ads, Facebook, etc.)
- Marketing tools and software
- Sales team salaries and commissions
- Content creation costs
- Marketing events and conferences
CAC Benchmarks for Startups
CAC varies significantly by industry and business model:
- B2B SaaS: $200-$400 for SMB, $1,000-$5,000 for enterprise
- E-commerce: $20-$50 depending on product category
- Consumer Apps: $10-$30 for mobile apps
- B2B Services: $500-$2,000 depending on deal size
CAC Optimization Strategies:
- Content Marketing: Create valuable content to attract customers organically
- Referral Programs: Leverage existing customers to reduce acquisition costs
- SEO Investment: Organic traffic typically has the lowest CAC
- Conversion Rate Optimization: Improve website conversion to lower cost per customer