What is CAC?
CAC (Customer Acquisition Cost) is the total sales and marketing cost required to acquire a new customer.
It measures how much you spend to get one customer, including sales team compensation, marketing spend, and technology costs.
CAC Formula:
CAC = Total Sales & Marketing Costs / Number of New Customers Acquired
Example:
- Monthly sales and marketing spend: $100,000
- New customers acquired: 50
- CAC = $100,000 / 50 = $2,000 per customer
Why CAC Matters
Unit Economics
CAC determines if your business model works.
You need to recover acquisition costs and generate profit. If CAC exceeds lifetime value (LTV), you lose money on every new customer.
Pricing and Profitability
CAC informs pricing strategy.
If CAC is too high relative to your price point, you can't profitably scale. Lower CAC or raise prices to achieve sustainable unit economics.
Growth Planning
CAC predicts growth capacity.
With a given marketing budget and CAC, you can forecast customer acquisition:
- Budget: $100,000
- CAC: $2,000
- Forecast: 50 new customers
CAC Benchmarks
By Business Model
| Business Model | Typical CAC | Payback Period Target |
|---|---|---|
| B2B SaaS (Enterprise) | $5,000-$25,000 | 12-18 months |
| B2B SaaS (Mid-Market) | $1,000-$5,000 | 9-12 months |
| B2B SaaS (SMB) | $200-$1,000 | 6-12 months |
| B2C E-commerce | $30-$150 | 1-3 months |
| B2C Subscription | $50-$300 | 6-12 months |
By Growth Stage
| Stage | Typical CAC | Trend |
|---|---|---|
| Early stage | Lower (founder-led sales) | Increases as you scale |
| Growth stage | Higher (marketing spend) | May decrease with efficiency |
| Mature stage | Optimized (brand awareness) | Stable with optimization |
CAC:LTV Ratio
The relationship between acquisition cost and lifetime value.
| Ratio | Assessment |
|---|---|
| Below 1:1 | Losing money on each customer |
| 1:1 to 1:2 | Unprofitable or barely breaking even |
| 1:2 to 1:3 | Healthy |
| 1:3 to 1:5 | Very healthy |
| Above 1:5 | Excellent |
Target: Minimum 3:1 LTV:CAC ratio for sustainable growth.
Calculating CAC
Blended CAC
Total acquisition cost across all channels.
Formula:
CAC = (Total Sales + Marketing Expenses) / Total New Customers
Includes all sales and marketing costs, regardless of channel.
Channel-Specific CAC
CAC for individual acquisition channels.
Formula:
CAC = Channel Spend / New Customers from that Channel
Examples:
- Paid search CAC: $150
- SEO CAC: $80
- Email marketing CAC: $50
- Referral CAC: $25
Organic vs. Paid CAC
Organic (unpaid) vs. Paid acquisition.
Organic CAC:
- SEO, content marketing, referrals
- Lower apparent cost
- Requires upfront investment with delayed returns
- Harder to calculate accurately
- Paid advertising, sponsored content
- Clear cost attribution
- Immediate results
- Scales with budget
Reducing CAC
Improve Conversion Rates
More conversions from same spend reduces CAC.
CAC Reduction Impact:
- 20% conversion increase = 17% CAC decrease
- Focus on landing pages, messaging, and sales process
Optimize Marketing Spend
Cut underperforming channels.
Optimization Process:
- Measure channel-specific CAC
- Identify high-CAC, low-performing channels
- Reallocate budget to efficient channels
- Test and iterate
Increase Retention
Reduce churn and increase LTV:CAC.
Retention reduces effective CAC because:
- Existing customers are cheaper to retain than acquire new ones
- Higher LTV improves CAC:LTV ratio
- Referrals from retained customers have lower CAC
Organic Growth
Build organic acquisition channels.
Organic Channels:
- SEO and content marketing
- Word of mouth and referrals
- Social media presence
- Community building
Common CAC Mistakes
Only measuring marketing spend:
CAC must include total acquisition costs, including sales team compensation, tools, and overhead.
Ignoring CAC over time:
CAC varies month to quarter. Track trends and seasonal patterns, not just snapshots.
Not calculating by channel:
Blended CAC hides inefficient channels. Measure channel-specific CAC to optimize spend.
Focusing only on CAC, not LTV:
Low CAC is meaningless if customers don't stick. CAC:LTV ratio matters more than CAC alone.
Not factoring in time to payback:
Fast payback (under 12 months) reduces risk and improves cash flow. Slow payback increases capital needs.
Key Takeaways
- CAC = Customer Acquisition Cost = total sales and marketing spend / new customers
- Target CAC:LTV ratio of 3:1 or higher for sustainable growth
- B2B SaaS CAC ranges from $200 (SMB) to $25,000+ (enterprise)
- Calculate both blended (all channels) and channel-specific CAC
- Reduce CAC by: improving conversion rates, optimizing marketing spend, increasing retention
- Track trends over time; CAC varies by season and growth stage
- CAC alone doesn't indicate success—consider with LTV, payback period, and retention
- Organic channels (SEO, referrals) typically have lower long-term CAC than paid
Sources:
Related Terms
Cadence
Sequence and timing of touchpoints in outreach campaign.
Call-to-Action (CTA)
Specific action you want prospect to take. Clear CTA improves conversion.
CAN-SPAM Act
US law regulating commercial email. Requires opt-out mechanism and sender identification.
Champion
Internal advocate who promotes your solution within prospect's organization.
