Customer Acquisition Cost (CAC): Definition & Formula

What is Customer Acquisition Cost (CAC)?

Customer Acquisition Cost (CAC) represents the total amount a company spends to bring in a new customer. It’s a key metric for evaluating the efficiency of your marketing and sales efforts, giving insight into the return on investment (ROI) for acquiring new clients. Understanding CAC helps ensure that marketing budgets are well spent by tracking the cost-effectiveness of each new customer gained.

By breaking down CAC alongside Customer Lifetime Value (LTV)—the expected revenue from a customer over time—you get a clearer picture of profitability and customer value. Tracking CAC becomes essential for sustaining a healthy balance between spending on new customer acquisition and generating long-term revenue.

How to Calculate Customer Acquisition Cost (CAC)

Calculating CAC involves a simple formula that combines all costs associated with customer acquisition over a specified period:

CAC = Total Sales and Marketing Costs / Total Number of New Customers Acquired

Example:

If your company spends $50,000 on marketing efforts (advertising, sales salaries, software tools, and any associated overhead) and gains 500 new customers, the CAC would be:

CAC = $50,000 / $500 = $100

This means you spent an average of $100 to acquire each new customer.