Customer Acquisition Cost (CAC): Formula and Examples
Customer acquisition cost (CAC) is the average amount you spend on sales and marketing to win one new customer. Divide your total sales and marketing costs for a period by the number of new customers you gained in that period.
By Javier Alonso, Founder & CEO. Updated .
Formulas
- CAC
- Total sales and marketing costs ÷ New customers acquired (Use the same period for both, such as one month or one quarter.)
- CAC payback (months)
- CAC ÷ (Monthly revenue per customer × Gross margin)
What to include in the cost
Include everything you spend to win customers: advertising, sales and marketing salaries (or the share of time founders spend on it), commissions, tools, content production, events and agency fees. Leaving out salaries makes CAC look far better than it is, which is the most common mistake.
Worked example
In one quarter, a startup spends $12,000 on ads, $3,000 on tools and content, and $15,000 on the share of salaries spent on sales and marketing: $30,000 in total. It wins 150 new customers.
CAC = $30,000 ÷ 150 = $200.
Each customer pays $50 a month at an 80% gross margin, so each contributes $40 a month. CAC payback = $200 ÷ $40 = 5 months.
Blended vs paid CAC
- Blended CAC divides all acquisition costs by all new customers, including those who arrived through word of mouth or search. It shows the overall efficiency of the business.
- Paid CAC divides paid-channel spend by customers from paid channels only. It shows whether advertising itself works.
A healthy blended CAC can hide an expensive paid channel, and the other way round. Track both, and track CAC by channel when you can.
What good looks like
CAC is only meaningful next to how much a customer is worth. A common rule of thumb for subscription businesses is that customer lifetime value should be about three times CAC or more, and that payback should be well under a year. Benchmarks vary widely by business model and price, so compare against your own trend over time first.
CAC at the early stage
Before product-market fit, CAC is noisy. Small numbers, founder-led selling and experiments make it swing from month to month. Track it anyway, but focus on whether it falls as you learn which channel and message work. See the go-to-market strategy entry.
For your role
- Service providers
- Agencies can show clients their CAC by channel before and after an engagement, which makes results concrete.
- Investors
- Ask whether CAC includes salaries and whether it is blended or paid. The answer changes the number a lot.
- Accelerators & incubators
- Teams in a cohort rarely have reliable CAC yet. Cost per qualified conversation or per activated user is a fairer early comparison.
Primary sources
- 16 Startup Metrics — Andreessen Horowitz
- SaaS Metrics 2.0 — David Skok, For Entrepreneurs
Common questions
- What does CAC stand for?
- CAC stands for customer acquisition cost: the average sales and marketing spend needed to win one new customer.
- How do you calculate CAC?
- Divide total sales and marketing costs for a period by the number of new customers acquired in the same period.
- What is a good CAC?
- One that is well below what a customer is worth. A common guide is lifetime value of at least three times CAC, with payback in under a year.
- Should CAC include salaries?
- Yes. Sales and marketing salaries are usually the largest acquisition cost. Leaving them out understates CAC.
Put it into practice
Traction Engine logs weekly distribution experiments and measures channel efficiency.