Standard : Customer Acquisition Cost (CAC)

Description

Customer Acquisition Cost (CAC) measures the total cost to acquire a new paying customer, including marketing, sales, and onboarding costs.

CAC is critical for understanding the efficiency of go-to-market spend and ensuring acquisition is sustainable relative to lifetime value.

How to Use

What to Measure

  • Total spend on acquisition activities in a period (ads, salaries, tools).
  • Number of new customers acquired in that same period.

Formula

CAC = Total Acquisition Cost ÷ Number of New Customers

Example: £50,000 marketing spend ÷ 250 new customers → CAC = £200.

Instrumentation Tips

  • Include all relevant costs: campaign spend, commissions, salaries.
  • Exclude costs unrelated to acquisition (e.g. existing customer support).
  • Track CAC by channel to optimise mix.

Why It Matters

  • Efficiency metric: Shows whether acquisition is cost-effective.
  • Scaling insight: Reveals diminishing returns of spend.
  • Budget allocation: Informs where to invest for growth.

Best Practices

  • Measure CAC over consistent timeframes.
  • Pair with CLV to ensure a healthy ratio (ideally <1:3).
  • Break down by channel and segment.

Common Pitfalls

  • Underestimating costs (ignoring salaries, overheads).
  • Mixing paid and organic acquisition inappropriately.
  • Looking at CAC in isolation without retention context.

Signals of Success

  • CAC decreases or remains stable as volume scales.
  • CAC payback period shortens over time.
  • Optimal CAC/LTV ratio is maintained.
  • [[Customer Lifetime Value (CLV)]]
  • [[Monthly Recurring Revenue (MRR)]]
  • [[Payback Period]]