How to Calculate Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) measures the total cost of acquiring a new paying customer. It includes all sales and marketing expenses divided by the number of customers acquired - revealing how efficiently your business converts spending into customers.

CAC is essential for understanding unit economics, setting marketing budgets, and evaluating growth investments. Combined with Customer Lifetime Value, it determines whether your customer acquisition is profitable.

Basic CAC Formula

The standard CAC calculation is:

CAC = Total Sales & Marketing Costs / Number of New Customers Acquired

All values should be for the same time period.

Step-by-Step Calculation

Step 1: Define the Time Period

Choose a consistent measurement period:

• Monthly (for fast-moving businesses)
• Quarterly (most common)
• Annually (for businesses with long sales cycles)

Step 2: Calculate Total Acquisition Costs

Include all costs directly tied to customer acquisition:

Marketing Costs:

• Advertising (paid search, social, display)
• Content marketing and SEO
• Events and sponsorships
• Marketing tools and software
• Marketing team salaries and benefits
• Agency and contractor fees

Sales Costs:

• Sales team salaries and commissions
• Sales tools (CRM, outreach, etc.)
• Travel and entertainment
• Sales training

Step 3: Count New Customers

Count customers who:

• Made their first purchase during the period
• Completed activation (if applicable)
• Are paying customers (exclude free trials, freemium users)

Step 4: Calculate CAC

CAC = Total Acquisition Costs / New Customers

Example Calculation

Quarterly CAC Example

Cost Category	Q1 Spend
Paid Advertising	$150,000
Marketing Team	$120,000
Marketing Tools	$15,000
Sales Team	$200,000
Sales Commissions	$50,000
Sales Tools	$10,000
Total	$545,000

New customers acquired in Q1: 150

CAC = $545,000 / 150 = $3,633 per customer

CAC Variations

Blended CAC vs. Paid CAC

Blended CAC includes all customers regardless of acquisition source:

Blended CAC = All Acquisition Costs / All New Customers

Paid CAC includes only paid channel customers:

Paid CAC = Paid Marketing Costs / Customers from Paid Channels

Blended CAC is lower (organic customers have near-zero acquisition cost). Paid CAC shows true cost of marginal growth.

Fully-Loaded CAC

Includes overhead allocation:

Fully-Loaded CAC = (Direct Costs + Allocated Overhead) / New Customers

Use for accurate unit economics. Requires reasonable overhead allocation methodology.

CAC by Channel

Calculate CAC for each acquisition channel:

Channel	Spend	Customers	CAC
Paid Search	$100,000	80	$1,250
Paid Social	$50,000	30	$1,667
Content/SEO	$40,000	60	$667
Sales Outbound	$200,000	40	$5,000

Channel-level CAC reveals where acquisition is most efficient.

CAC by Segment

Different customer segments have different acquisition costs:

Segment	CAC
Enterprise	$15,000
Mid-Market	$3,000
SMB	$500

Segment CAC informs targeting and pricing strategy.

CAC and Unit Economics

CLV:CAC Ratio

The fundamental unit economics ratio:

CLV:CAC Ratio = Customer Lifetime Value / CAC

Ratio	Interpretation
< 1:1	Losing money on every customer
1-2:1	Marginal - limited growth capacity
3:1	Healthy - standard SaaS target
> 5:1	Very healthy (or underinvesting in growth)

CAC Payback Period

How long to recover acquisition cost:

CAC Payback = CAC / (Monthly Revenue per Customer × Gross Margin)

Target: Under 12 months for most SaaS businesses.

Common CAC Mistakes

Mistake 1: Incomplete Cost Inclusion

Excluding sales salaries or tools understates CAC. Include all costs that wouldn't exist without the acquisition function.

Mistake 2: Timing Mismatches

Marketing spend in January may produce customers in March. For businesses with long sales cycles, consider lagging the denominator or using moving averages.

Mistake 3: Counting Wrong Customers

Including reactivations, upgrades, or free users in new customer count understates CAC. Define "new customer" precisely.

Mistake 4: Ignoring Channel Mix

Aggregate CAC hides channel efficiency. A low blended CAC might mask unprofitable paid channels subsidized by organic growth.

Mistake 5: Fixed vs. Variable Cost Confusion

Some acquisition costs are fixed (salaries), some are variable (ad spend). Marginal CAC (cost of acquiring one more customer) differs from average CAC.

Reducing CAC

Improve Conversion

• Optimize landing pages
• Reduce friction in signup flow
• Better qualification reduces wasted sales effort

Shift Channel Mix

• Invest more in lower-CAC channels
• Build organic acquisition (content, referrals)
• Reduce reliance on expensive paid channels

Increase Efficiency

• Better targeting reduces wasted spend
• Sales enablement improves close rates
• Automation reduces manual costs

Expand AOV/ACV

• Higher contract values spread CAC across more revenue
• Upselling at acquisition improves unit economics

CAC in Context-Aware Analytics

metric:
  name: Customer Acquisition Cost
  description: Total cost to acquire one new customer
  calculation: |
    SUM(sales_marketing_costs) / COUNT(DISTINCT new_customers)
  time_period: Trailing 3 months
  cost_includes:
    - marketing_spend
    - sales_salaries
    - sales_commissions
    - acquisition_tools
  customer_definition: First purchase in period
  dimensions: [channel, segment, region]
  owner: marketing_ops
  certified: true

With governed definitions, CAC calculations are consistent - ensuring marketing and finance teams work from the same numbers.