Customer acquisition cost
KAK (rhymes with pack)
The total cost of sales and marketing divided by the number of new customers acquired in a period.
CAC is the total cost of acquiring a new customer. Add up all your sales and marketing costs for a period. Divide by the number of new customers you acquired. If you spent $1M on sales and marketing last quarter and acquired 100 new customers, your CAC is $10k per customer.
CAC by itself means nothing. A $10k CAC might be amazing if those customers pay you $100k per year. It might be terrible if they pay $5k per year and churn after six months. CAC only makes sense in relationship to LTV and payback period.
When budgets tighten, someone will propose cutting marketing spend to reduce CAC. Sometimes they are right. Sometimes they are about to shut off the pipeline and will not realize it for six months. Every dollar you spend should connect to pipeline, conversion, retention, or expansion. If you can draw that line, defend it with data. If you cannot, question whether you should be spending it.
Examples
A PLG company with low-touch sales.
You spend $500k/quarter on marketing and $200k on a small sales team. You acquire 350 new paying customers. Your CAC is $2,000 per customer.
An enterprise software company.
Your field sales team costs $3M per quarter. Marketing spends $2M. You close 10 enterprise deals. Your CAC is $500k per customer. That sounds high, but if ACV is $800k, the math works.
A startup burning cash on paid acquisition.
You spent $200k on Google Ads and acquired 40 customers. Your paid CAC is $5k. But those customers only pay $3k/year and churn at 25%. Your LTV/CAC ratio is below 1x. You are losing money on every customer.
In practice
CAC calculation worksheet
Total sales and marketing spend: $__ Number of new customers acquired: __ CAC = Total spend / New customers = $__ Blended CAC (all channels combined): $__ Paid CAC (paid acquisition only): $__ Organic CAC (content, referrals, PLG): $__ LTV/CAC ratio: __ (target: 3x or higher) Payback period: __ months (target: under 18 months)
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Frequently asked questions
What is a good CAC for a SaaS company?
There is no universal answer. CAC depends on your ACV and LTV. A $50k CAC is fine if your ACV is $200k and LTV is $600k. The metric that matters is the LTV/CAC ratio. Most investors want to see 3x or higher.
Related terms
The total gross profit expected from a customer over the entire relationship. LTV determines how much you can spend to acquire them.
Lifetime value divided by customer acquisition cost. The fundamental unit economics equation for any subscription business.
The number of months it takes to recoup the cost of acquiring a customer. Shorter is better for cash flow.
The total dollar value of deals your sales team is actively working. The most important leading indicator in any sales organization.
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