Customer acquisition cost (CAC) is the cost associated with acquiring each customer. It can vary depending on your marketing and sales teams’ efforts. Essentially, calculating your CAC means adding up all your sales and marketing expenditures and dividing them by the number of new customers for the period.
CAC = Total marketing and sales spend (salaries, tools, ads, etc.) / Number of customers converted
See also: Customer Lifetime Value (CLV)
CAC becomes important when you’re able to compare it to the revenue a customer brings in over the lifetime of their relationship with you. This revenue is called the Customer Lifetime Value (CLV).
If your CAC for a customer is high and the same customer has a low lifetime value, you probably need to find customers that are a better fit. Balancing CAC with LTV can help you make smarter marketing and sales decisions and create more profitable models for your team.