Customer acquisition cost (CAC) is the average expense incurred by a business to attract and convert a new customer. It's a key metric businesses use to measure their marketing and sales efficiency, directly reflecting the effectiveness of customer acquisition strategies.
Knowing your CAC helps in evaluating the profitability of customer segments and informs decisions on marketing budgets, pricing, and resource allocation. A lower CAC typically indicates efficient marketing and sales processes, while a higher CAC suggests there may be inefficiencies or overly expensive acquisition methods.
To calculate your CAC, total up all marketing and sales expenses for a given period—such as advertising spend, promotional costs, sales staff salaries, and marketing software subscriptions—then divide that sum by the number of customers acquired within that timeframe.
Closely monitoring CAC can highlight opportunities to streamline costs, enhance customer targeting, and optimize marketing techniques. Additionally, comparing CAC with customer lifetime value (LTV) provides insights into long-term customer profitability, allowing businesses to sustainably balance their growth with acquisition expenses.
Ultimately, understanding and proactively managing your CAC helps ensure healthier margins, sustainable growth, and greater competitive advantages in your industry.
