Customer Acquisition Cost, commonly referred to as CAC, is a metric used by businesses to gauge the total average cost they spend to acquire a new customer. This figure includes all the expenses that are directly related to convincing a potential customer to buy a product or service. To calculate CAC, a company must add up all the costs associated with marketing and sales—including advertising expenses, salaries of marketing and sales teams, the cost of sales and marketing software, and any other overhead—and then divide that total by the number of new customers acquired during that period. This metric is crucial for understanding the efficiency of marketing strategies and sales efforts, and it helps businesses determine the value of a customer relative to the cost of acquiring them. A lower CAC indicates a more cost-effective acquisition process, which can contribute to a company’s profitability. Conversely, a high CAC can suggest that a company is spending too much to attract new customers, which can be unsustainable in the long term. Companies strive to optimize their CAC through various methods, such as improving conversion rates, targeting the right audience, refining their sales funnel, and employing more effective marketing tactics.
