CAC (Customer Acquisition Cost) is the total cost of acquiring a new customer, including all marketing, advertising, and sales expenses divided by the number of new customers gained in that period.
How to Calculate CAC
CAC = Total Sales & Marketing Spend ÷ Number of New Customers Acquired
Include all costs: ad spend, marketing team salaries, sales commissions, software tools, content creation, and agency fees. CAC should be measured over consistent time periods (monthly or quarterly).
The CAC:LTV Ratio
The most critical business metric is the ratio of CAC to Customer Lifetime Value (LTV). A healthy ratio is LTV:CAC of 3:1 or higher. Below 3:1, you are spending too much to acquire customers. Above 5:1, you may be under-investing in growth.
Real-World Example
A SaaS company spends $50,000/month on marketing and sales, acquiring 100 new customers. CAC = $50,000 ÷ 100 = $500 per customer. If average LTV is $2,000, the LTV:CAC ratio is 4:1 — healthy and sustainable.
Frequently Asked Questions
What is a good CAC?
There is no universal benchmark — it depends on LTV. A $500 CAC is excellent if LTV is $5,000 but terrible if LTV is $400. Always evaluate CAC relative to lifetime value, not in isolation.
How can I reduce CAC?
Improve conversion rates (better landing pages, faster sales process), invest in organic channels (SEO, content marketing, referrals), focus on higher-quality leads, optimize ad targeting, and reduce churn (which effectively lowers CAC by increasing LTV).
Should I include all salaries in CAC?
Include salaries for people whose primary role is customer acquisition (sales reps, marketing team). Exclude roles that serve existing customers (support, success) unless they also contribute to new customer acquisition.