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Customer Acquisition Cost
Customer acquisition cost (CAC) is the total sales and marketing cost of winning one new customer in a period, calculated as total acquisition spend divided by the number of new customers acquired.
What to include
Ad spend, agency and freelancer fees, software, content and creative production, and the share of sales and marketing salaries spent on new business. Counting only ad spend makes CAC look much lower than it really is.
Why it needs context
CAC only means something next to customer value. Bain’s research found acquiring a customer can cost five to 25 times more than keeping one, and a 5% increase in retention can raise profits by 25% to 95% (Harvard Business Review, 2014). Compare CAC with gross margin per customer over their lifetime, and track payback period.
Formula
CAC = total acquisition costs / new customers acquired