CAC (Customer Acquisition Cost)

Definition

CAC (Customer Acquisition Cost), or Customer Acquisition Cost, is the metric that measures the total cost incurred to acquire a new paying customer. It includes all marketing and sales expenses necessary to convince a prospect to become a customer, divided by the number of new customers acquired in the period.

The basic CAC formula is:

CAC = (Marketing Costs plus Sales Costs) / Number of New Customers

Example: a company spends 50,000 euros on marketing and 30,000 euros on sales in a month, acquiring 100 new customers. CAC = (50,000 plus 30,000) / 100 = 800 euros per customer

CAC is crucial because:

• Unit economics: determines profitability together with CLV (Customer Lifetime Value)
• Scalability: predictable CAC enables growth planning
• Channel optimization: comparing CAC per channel identifies best ROI
• Fundraising: investors evaluate efficiency via LTV/CAC ratio

CAC emerged as a metric in the 1990s with direct marketing and internet. Became central in the 2000s with SaaS and growth hacking. Companies like HubSpot, Salesforce built acquisition playbooks by optimizing CAC per channel.

Today, tracking CAC is standard for every digital business: e-commerce, SaaS, mobile apps, marketplaces. Variants include CPA (Cost Per Acquisition) in advertising and CAC blended vs organic.

How it Works

Calculating CAC requires precision in defining costs and attribution.

CAC Components

Marketing Costs (M):

• Paid advertising: Google Ads, Meta Ads, LinkedIn Ads, display
• Content marketing: content production, SEO tools, agencies
• Events: conferences, sponsorships, booth costs
• Marketing tools: CRM, analytics, automation (HubSpot, Marketo)
• Marketing salaries: marketing team (full-loaded cost: salary plus benefits plus taxes)
• Agencies and freelancers: consultants, contractors

Sales Costs (S):

• Sales salaries: AE (Account Executives), SDR (Sales Development Reps), SE (Sales Engineers)
• Sales tools: CRM (Salesforce), outreach tools (Outreach, SalesLoft)
• Commissions and bonuses: paid at deal close
• Travel and entertainment: sales trips costs, dinners
• Sales overhead: office space allocated to sales

Complete formula: CAC = (M plus S) / New Customers

What NOT to include:

• Customer success (post-sale)
• Product development
• G&A (general and administrative) not allocable

Blended CAC vs CAC by Channel

Blended CAC: average across all channels. Useful for overview but hides performance per channel.

CAC by channel: calculate separately for organic, paid, referral, etc.

Example:

• Organic (SEO, content): 100 customers, cost 10,000 euros → CAC 100 euros
• Paid (Google or Meta Ads): 200 customers, cost 80,000 euros → CAC 400 euros
• Referral: 50 customers, cost 5,000 euros (incentive) → CAC 100 euros

Blended CAC: (10K plus 80K plus 5K) / (100 plus 200 plus 50) = 95K / 350 = 271 euros

Blended CAC (271 euros) masks that paid has CAC 4x organic or referral. Decision: invest more in SEO and referral programs.

Timeframe and Attribution Window

Timeframe: over which period to calculate CAC?

• Monthly CAC: costs month / customers acquired in month. Pro: granular. Con: noisy (January ads may convert in February).
• Quarterly CAC: smoothed, better for trends. Used by most SaaS.
• Cohort CAC: costs to acquire specific cohort (e.g., all Q1 2024 customers), tracked until complete conversion.

Attribution window: how much time between touchpoint and conversion?

B2B SaaS: sales cycle 30-90 days. Customer acquired in March may derive from January marketing. Need lagged CAC: allocate costs to cohort based on when prospect entered funnel.

CAC Payback Period

How long to recover CAC via gross profit?

CAC Payback = CAC / (ARPU × Gross Margin%)

Example: CAC 600 euros, ARPU 100 euros per month, gross margin 75%. Payback = 600 / (100 × 0.75) = 8 months

SaaS Benchmark:

• Best-in-class: under 12 months
• Acceptable: 12-18 months
• Problematic: over 24 months

Long payback burns cash. For startups with limited runway, CAC payback is more critical than LTV/CAC ratio.

Use Cases

LTV/CAC Ratio Optimization

The golden ratio is LTV/CAC over 3x.

Calculation:

• CLV = (ARPU × Gross Margin) / Churn Rate = (100 × 0.8) / 0.05 = 1,600 euros
• CAC = 500 euros
• Ratio: 1,600 / 500 = 3.2x (healthy)

Interpretation:

• Below 1x: unsustainable (losing money)
• 1-3x: break-even or low profitability
• Over 3x: healthy, scaling possible
• Over 5x: potential underinvestment (growth too conservative)

If ratio is 6x, means CAC very low or CLV very high. Opportunity: increase CAC (invest more in marketing) to accelerate growth maintaining positive economics.

Channel Performance Analysis

Tracking CAC per channel identifies best ROI.

Dashboard:

Insights:

• Referral has best ratio but low volume (30 customers)
• Paid Social has worst ratio but 60% volume
• Outbound has high CAC but very high CLV (enterprise)

Decisions:

1. Scale referral program (incentives, automation)
2. Optimize paid social targeting (reduce CAC or shift to higher LTV segments)
3. Continue outbound for enterprise (high CAC justified by high CLV)

Sales vs Marketing Efficiency

Separating CAC into sales and marketing components reveals bottlenecks.

Scenario A: CAC 800 euros (600 marketing, 200 sales). Marketing generates many leads, sales converts efficiently. Opportunity: increase marketing budget.

Scenario B: CAC 800 euros (200 marketing, 600 sales). Few leads, sales works hard to convert. Problem: lead quality or insufficient volume. Action: improve lead generation.

Ratio Marketing CAC / Sales CAC indicates balance. Product-led growth SaaS: high ratio (self-serve, low touch sales). Enterprise SaaS: low ratio (sales-heavy).

Pricing Impact on CAC

Increasing price can reduce CAC indirectly.

Before: 50 euros per month plan, conversion rate 5%, CAC 500 euros.

After: 100 euros per month plan, conversion rate 3% (price sensitivity), apparent CAC increases (fewer conversions per fixed budget).

But: CAC 500 / 0.03 = invariant lead cost, ARPU doubles → CLV doubles → LTV/CAC improves from 3x to 6x.

This shows CAC should always be evaluated together with CLV, not in isolation.

Cohort CAC Analysis

Tracking CAC per cohort reveals efficiency trends.

Cohort Analysis:

• Q1 2024: CAC 400 euros (early adopters, word-of-mouth)
• Q2 2024: CAC 600 euros (scaling paid, more competitive)
• Q3 2024: CAC 750 euros (saturation)
• Q4 2024: CAC 650 euros (optimization, better targeting)

Trend: CAC grows with scaling (normal), but Q4 improvement indicates learning. If CAC continues to grow without plateau, indicates market saturation or inefficiency.

Practical Considerations

Fully-Loaded CAC

Many companies underestimate CAC by excluding indirect costs.

Minimal CAC (ad spend only): 300 euros Full CAC (ad spend plus salaries plus tools plus overhead): 600 euros

Common error: using minimal CAC for decisions, resulting in overvalued economics.

Best practice: fully-loaded CAC includes:

• Salaries (full-loaded: base plus benefits plus taxes)
• Tools and software (allocated per headcount)
• Office overhead (20-30% of salaries)
• Agencies and contractors

Organic vs Paid CAC

Paid CAC: directly measurable (ad spend / conversions).

Organic CAC: includes SEO or content team salaries, tools, content production. Often ignored (“organic is free”) but has costs.

Example: content team of 3 people (200K euros per year) plus tools (20K) = 220K. If they generate 500 customers per year, organic CAC = 440 euros.

Organic seems high but:

• Has compounding effect (content continues to generate traffic)
• Higher quality leads (self-qualified, higher CLV)

Paid is linear (stop ads → stop customers). Organic is investment that accumulates.

CAC in Freemium and PLG

Product-Led Growth (PLG) with freemium has different CAC:

CAC to sign-up (free user): can be very low (10-50 euros via ads, or nearly zero organic).

CAC to paid conversion: includes conversion optimization costs, in-app messaging, upgrade prompts.

Example: 10,000 free users acquired at 20 euros each (200K). 200 convert to paid (2% conversion). CAC paid user = 200K / 200 = 1,000 euros.

Alternatively, count only direct conversion costs (e.g., upgrade emails, sales-assisted conversions): CAC 100 euros per paid.

Ambiguity requires clear definition: CAC to free vs CAC to paid.

Multi-Touch Attribution

Customer journey has many touchpoints (Google Ad → Blog post → Email → Demo → Close). How to allocate CAC?

Attribution models:

• Last-touch: 100% credit to last touchpoint (underestimates early funnel)
• First-touch: 100% to first touchpoint (underestimates nurture)
• Linear: equal credit to all touchpoints
• Time-decay: more credit to touchpoints near conversion
• U-shaped: 40% first touch, 40% last touch, 20% distributed

For accurate CAC by channel, need multi-touch attribution. Tools: Google Analytics 4, HubSpot, Salesforce Pardot.

Common Misconceptions

”Lower CAC is Always Better”

Low CAC can indicate underinvestment. If you have LTV/CAC of 10x, you’re growing too slowly.

Optimal CAC balances growth and profitability. In growth stage, acceptable to have LTV/CAC of 2-3x for velocity. In maturity, target 4-5x for profitability.

Amazon, Uber operated with CAC negatively correlated to profitability for years (land grab strategy). Intentional.

”Organic CAC is Free”

“Organic traffic is free” ignores SEO costs, content creation, team. Organic has CAC, it’s just structured differently (upfront investment plus compounding).

In reality, organic CAC can be comparable to paid, but with better long-term ROI (traffic persists without ongoing ad spend).

”CAC Applies Only to New Customers”

Expansion revenue (upsell, cross-sell) has “CAC” of expansion: sales or CS costs to generate expansion.

Expansion CAC is typically much lower than new customer CAC (10-30% of initial CAC). This makes expansion highly profitable.

Example: CAC new customer 1,000 euros. Expansion CAC (CSM time per upsell) 100 euros. LTV expansion 3,000 euros → ROI 30x.

Best-in-class SaaS (Snowflake, Databricks) generate over 50% revenue growth from expansion (land-and-expand strategy).

Related Terms

• CLV (Customer Lifetime Value): customer lifetime value to balance with CAC
• ROI (Return on Investment): marketing ROI calculated as (CLV minus CAC) / CAC
• MRR (Monthly Recurring Revenue): CAC payback calculated from MRR per customer
• Churn Rate: high churn reduces CLV, worsening LTV/CAC ratio

Sources

• David Skok (For Entrepreneurs). SaaS Metrics 2.0 - A Guide to Measuring and Improving What Matters