What It Means
Customer acquisition cost (CAC) is total sales and marketing spend over a period divided by the number of new customers gained in that same period. That spend covers ads, what the sales and marketing people are paid, commissions and bonuses included, and the overhead that goes with their work.
Try It: Work Out Your CAC and LTV to CAC
Put in one month of costs and customers. CAC and the LTV to CAC ratio update as you type.
Your numbers Sample numbers. Change any of them.
Your result
At or above 3 to 1, the target most often cited for software businesses.
Customers bring in more than they cost to win, but less than the often-cited 3 to 1.
Each customer costs more to win than they bring in over their lifetime.
How People Say It at Work
- "Our CAC on paid social doubled this quarter."
- "What's the payback on that CAC?"
- "We can't grow if CAC keeps climbing."
The Breakdown
Formula
CAC = sales and marketing spend ÷ new customers acquired, both measured over the same period.
Worked example. A small online shop's costs for one month:
| Cost | Amount |
|---|---|
| Advertising | $2,000 |
| Marketing software | $500 |
| FreelanceFreelancingWorking for yourself, selling your skills to different clients by the project or the hour instead of holding a long-term job with one employer. See more marketer | $1,500 |
| Total | $4,000 |
The shop gained 80 new customers that month. $4,000 ÷ 80 = $50 CAC.
Benchmark. CAC is usually judged against customer lifetime value (LTV)Customer lifetime value (LTV)The total revenue a business expects to earn from one customer over the whole time that customer keeps buying. See more. An LTV to CAC ratioLTV to CAC ratioCustomer lifetime value divided by customer acquisition cost, showing how many dollars a customer brings in for each dollar spent winning them. See more of about 3 to 1 is often cited as a healthy target, particularly for software businesses.
Good to Know
Use the same time window for spend and customers. Counting only ad spend gives a lower number than the true CAC, because salaries, tools and commissions belong in the formula too.
FAQ
What costs go into CAC?
Everything spent to win customers in that period: ads and other marketing, the commissions and bonuses paid on sales, the pay of the people who sell and market, and the overhead that supports that work.
What's the difference between CAC and CPA?
CPA (cost per acquisition) can count any conversion, such as a sign-up or a download. CAC counts only new paying customers.
What's a good LTV to CAC ratio?
About 3 to 1 is a commonly cited target, meaning each customer brings in roughly three times what it cost to win them.
Do It in Buhata
Team Space
Track CAC, LTV and payback in a Team Space in Buhata so the whole team sees the same numbers every month.
Open BuhataRelated Terms and Categories
- Customer lifetime value (LTV)
The total revenue a business expects to earn from one customer over the whole time that customer keeps buying.
- LTV to CAC ratio
Customer lifetime value divided by customer acquisition cost, showing how many dollars a customer brings in for each dollar spent winning them.
- Return on ad spend (ROAS)
The revenue, or other conversion value, that ads bring in divided by what the ads cost, shown as a ratio or a percentage.
Sources
Corporate Finance Institute, "Customer Acquisition Cost (CAC)"; Wall Street Prep, "LTV/CAC Ratio"
- corporatefinanceinstitute.com/resources/accounting/customer-acquisition-cost-cac
- www.wallstreetprep.com/knowledge/ltv-cac-ratio
Last updated .