CAC (Customer Acquisition Cost) is the average amount a business spends on sales and marketing to acquire one new paying customer over a given period.
Why it matters
CAC shows how efficiently growth is bought. When it exceeds what a customer is worth over time, each new customer loses money. Comparing it with LTV and tracking it by channel helps decide where to spend and where to stop. It is most useful when calculated per channel and per period, and when compared with how long it takes a customer to repay the cost, often called the payback period.
Example
In a month a company spends 6,000 USD on ads and 4,000 USD on sales salaries and tools, and gains 50 customers. CAC is 10,000 divided by 50, or 200 USD. If LTV is 600 USD, the LTV to CAC ratio is 3.
Common mistakes
- Counting only ad spend and leaving out salaries, tools and agency fees.
- Mixing paid and organic customers into one blended figure that hides expensive channels.
- Ignoring the delay between spending and the customer converting.
Related
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