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Customer Acquisition Cost (CAC)

Lower is better

Marketing
Product
Sales

How is Customer Acquisition Cost (CAC) calculated?

Customer Acquisition Cost (CAC) formula

To calculate customer acquisition cost take the cost of all your marketing efforts within a given period of time and subtract that from the cost of all your sales efforts within the same period of time. Divide the result by the total number of customers acquired within that time period to arrive at your customer acquisition cost.

What should be included in the cost of your sales efforts?

  • Cost of sales software
  • Employee salaries
  • Customer incentives; you may be offering gift cards or swag in exchange for a phone call about your product.

What should be included in the cost of your marketing efforts?

  • Cost of advertising on paid social media channels, newsletters, TV commercials, newspaper ads, influencer marketing, etc.
  • Employee salaries
  • Payments to creative, PR, or other agencies.
  • Cost of marketing software
  • Hardware or operating costs, you may need things like a nice camera to produce high-quality video content.

What is Customer Acquisition Cost (CAC)?

Customer Acquisition Cost is a metric that helps inform how efficiently your business is acquiring new customers. It's often used in conjunction with LTV and time to break-even to get a holistic view of your operating efficiency. To ensure that your business is operating efficiently, you'll want your CAC to be 1/3 of what your current LTV is. If your CAC is too high, the profitability of your business will not be able to sustain long-term growth.

How can you reduce your Customer Acquisition Cost (CAC)?

  • Focus on making your sales and marketing operations more efficient. If you're pouring all your money into paid advertising, think about pivoting towards organic SEO growth, viral features, or generating positive word-of-mouth.
  • Increase your prices. This is a touchy subject, but if your prices are too low, then you be shortchanging yourself. You may be surprised by the willingness of your customers to pay higher prices if the value that they're getting justifies it. However, pricing that's too high may cause higher customer churn rates.
  • Provide more a self-service experience so that potential prospects can learn about your product and understand the value proposition without the expensive overhead of a sales rep hand-holding them through the process.

Why is Customer Acquisition Cost (CAC) important?

Customer acquisition cost is important to measure the sustainability of your pricing model. CAC is most helpful when used in conjunction with other KPIs like LTV and time to break even.

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