Customer Acquisition Cost (CAC): How to Calculate and Optimize
CAC tells you how much you're spending to acquire each customer. Master this metric to build a sustainable growth engine.
Quick Definition
Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, including all sales and marketing expenses divided by the number of new customers acquired.
If you're spending $1,000 to acquire a customer worth $500, you have a problem. If you're spending $100 to acquire a customer worth $5,000, you should be spending more on acquisition.
CAC is one of the most critical metrics for any growth-stage startup. It tells you whether your growth is sustainable and profitable—or whether you're buying revenue at a loss. Combined with customer lifetime value (LTV), it determines the fundamental economics of your business.
What Is Customer Acquisition Cost?
CAC measures how much money you spend, on average, to acquire each new customer. It includes all the costs involved in convincing someone to buy your product.
Why does this matter? Because growth isn't free. Every new customer comes with a cost—marketing spend, sales salaries, tools, and more. Understanding this cost helps you:
- Determine which marketing channels are most efficient
- Set sustainable growth budgets
- Price your product appropriately
- Show investors your unit economics work
- Make informed decisions about scaling spend
How to Calculate CAC
The basic formula is straightforward:
CAC = Total Sales & Marketing Costs ÷ New Customers Acquired
Let's break this down with an example:
CAC Calculation Example
Time Period Considerations
Use a consistent time period—typically monthly or quarterly. There's a lag between when you spend on marketing and when those customers convert, so some companies offset their customer count by a month or two.
Important: When calculating CAC, use the same time period for costs and customers. If you're measuring Q1 CAC, use Q1 costs and Q1 new customers.
What Costs to Include in CAC
This is where many founders go wrong. You need to include the fully loadedcost of your sales and marketing operation.
Include in CAC
- • Advertising spend (all channels)
- • Marketing team salaries
- • Sales team salaries & commissions
- • Marketing software (Hubspot, etc.)
- • Sales tools (Salesforce, Outreach)
- • Content creation costs
- • Agency fees
- • Events and trade shows
- • Travel for sales meetings
- • PR and communications
Don't Include in CAC
- • Product development costs
- • Customer success / support
- • General & administrative
- • Infrastructure / hosting
- • Executive salaries (usually)
- • Office rent (usually)
- • Post-sale onboarding
Blended vs. Fully Loaded CAC
Blended CAC includes all customers (paid, organic, referral).Fully loaded CAC might include overhead allocation.
For investor conversations, blended CAC is standard. Internally, you may want to track both to understand true costs versus marketing efficiency.
CAC by Channel
Your blended CAC hides significant variation across channels. Track CAC by acquisition channel to optimize your marketing mix.
| Channel | Typical CAC | Notes |
|---|---|---|
| Organic / SEO | Low | Long-term investment, high volume |
| Referrals | Low-Medium | High quality, limited scale |
| Content Marketing | Medium | Builds over time, compounds |
| Paid Social | Medium-High | Scalable, competitive |
| Paid Search | Medium-High | High intent, expensive keywords |
| Enterprise Sales | High | High touch, long cycles, big deals |
CAC Benchmarks
"Good" CAC varies dramatically by business model, ACV, and market. Here are some benchmarks:
SMB SaaS ($100-1,000 ACV)
Self-serve, low-touch sales motion
Mid-Market SaaS ($10-50K ACV)
Inside sales, moderate touch
Enterprise SaaS ($100K+ ACV)
Field sales, high touch
E-commerce / D2C
Primarily paid acquisition
How to Reduce CAC
Lower CAC means more efficient growth and better unit economics. Here are proven strategies:
Improve Conversion Rates
If you convert 2% instead of 1% of website visitors, your CAC drops by half. Optimize landing pages, sign-up flows, and sales processes.
Build Referral Programs
Customers acquired through referrals typically have lower CAC and higher LTV. Incentivize happy customers to spread the word.
Invest in Content & SEO
Organic channels have high upfront costs but low marginal CAC. Content compounds over time, reducing blended CAC.
Focus on Ideal Customer Profile
Stop marketing to everyone. Narrow your ICP to customers most likely to convert and succeed. Better targeting = lower CAC.
Cut Underperforming Channels
Track CAC by channel ruthlessly. Cut or reduce spend on high-CAC channels that aren't delivering quality customers.
Shorten Sales Cycles
Faster sales cycles mean lower CAC (less sales time per deal). Improve qualification, provide better collateral, and remove friction.
Common CAC Mistakes
Not Including All Costs
Excluding sales salaries or marketing overhead makes CAC look artificially low. Include the full cost or you're lying to yourself.
Ignoring CAC by Channel
Blended CAC hides channel performance. Your Facebook CAC might be 3x your Google CAC, but you'll never know without tracking it.
Looking at CAC in Isolation
A $10,000 CAC is great if LTV is $50,000. It's terrible if LTV is $8,000. Always look at CAC in context of LTV and payback period.
Optimizing for Lowest CAC
The goal isn't minimum CAC—it's maximum profitable growth. Sometimes spending more per customer (higher CAC) to get better customers is worth it.
Key Takeaways
- 1CAC = Total S&M Costs ÷ New Customers Acquired
- 2Include all sales & marketing costs (salaries, ads, tools, events)
- 3Track CAC by channel to optimize your marketing mix
- 4Target LTV:CAC ratio of 3:1 or better
- 5Reduce CAC through better conversion, referrals, and content marketing
Need Help Optimizing Your CAC?
Eagle Rock CFO helps seed and Series A startups build metrics dashboards, analyze unit economics, and present compelling data to investors.
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