Customer Acquisition Cost (CAC)

What is Customer Acquisition Cost (CAC)?

Customer Acquisition Cost (CAC) is a metric used in business to measure the average cost a company incurs to acquire a single customer. It is a crucial metric for evaluating the efficiency and effectiveness of a company’s marketing and sales efforts.

How to calculate CAC

CAC takes into account all costs associated with customer acquisition. For example, advertising costs, marketing campaign costs, sales department salaries and commissions, technology and software costs, and others. These costs are then divided by the number of customers acquired in a given period to calculate the average CAC.

The formula for calculating CAC is:

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

Lowering CAC is generally desirable because it means a company is acquiring customers at a more efficient cost, which can lead to improved profitability. However, it’s important to balance this with the quality of customers acquired, as focusing solely on reducing CAC could result in attracting customers who don’t provide long-term value to the business.

CAC is often used in conjunction with other metrics, such as Customer Lifetime Value (CLV), which measures the total value a customer brings to a company over the course of their relationship. Comparing CAC to CLV can help companies determine the sustainability of their customer acquisition strategies and make informed decisions about resource allocation and business growth.