Customer Acquisition Cost (CAC) Explained

Customer Acquisition Cost (CAC) is how much you spend to get one new customer. It includes everything related to bringing customers in — ads, sales team, marketing tools, content, agencies — divided by how many customers you actually acquired.

CAC is one half of the most important equation in business: the LTV:CAC ratio. You need to know what you're paying for customers to know if your business model works.

The CAC Formula

CAC = Total Sales & Marketing Costs ÷ Number of New Customers

If you spent $10,000 on marketing last month and acquired 100 new customers, your CAC is $100.

What to Include in "Total Costs"

This is where people get it wrong. Your CAC should include everything that goes into acquiring customers:

• Ad spend — across all platforms (Google, Facebook, LinkedIn, etc.)
• Sales team costs — salaries, commissions, bonuses
• Marketing team costs — salaries, freelancers, agencies
• Tools and software — CRM, analytics, email marketing, ad management
• Content creation — blog posts, videos, landing pages
• Events and sponsorships — conferences, webinars

Don't include: product development, customer support (that's retention, not acquisition), general overhead, or costs unrelated to getting new customers.

Blended vs Channel-Specific CAC

Your blended CAC is the total across all channels. But you should also track CAC per channel:

• What's your Google Ads CAC?
• What's your organic/SEO CAC?
• What's your referral CAC?

This tells you which channels are efficient and where to allocate more budget. Organic channels often have the lowest CAC but take longer to build.

CAC Benchmarks by Industry

Average CAC varies massively:

• SaaS (B2B): $200-2,000+ (complex sales cycles, higher touch)
• SaaS (B2C): $50-200 (self-serve, lower price points)
• E-commerce: $10-100 (depends on product value)
• Fintech: $200-1,000 (high regulatory and trust barriers)
• Mobile apps: $1-5 per install, $20-100+ per paying user

These numbers mean nothing without context. A $500 CAC is great if your LTV is $5,000 and terrible if your LTV is $300.

The LTV:CAC Ratio

This is the metric that tells you if your acquisition is sustainable:

LTV:CAC Ratio = Customer Lifetime Value ÷ Customer Acquisition Cost

• Below 1:1 — You lose money on every customer. Stop spending on acquisition and fix the fundamentals.
• 1:1 to 3:1 — Barely breaking even after other costs. Unsustainable for growth.
• 3:1 to 5:1 — The healthy zone. You make enough per customer to reinvest in growth.
• Above 5:1 — You might be under-spending on acquisition. Test scaling up — there are likely profitable customers you're missing.

A $100 CAC with $400 LTV gives you a 4:1 ratio — solid. That same $100 CAC with $150 LTV gives you 1.5:1 — you're in trouble.

How to Lower Your CAC

• Improve conversion rates. This is usually the fastest win. If your landing page converts at 2% instead of 1%, you just halved your CAC without spending a dollar more on ads. Focus on conversion rate optimization first.
• Invest in organic channels. SEO, content marketing, referral programs, and word of mouth have no per-acquisition cost once built. They reduce blended CAC significantly over time.
• Optimize ad targeting. Eliminate wasted spend by excluding audiences that don't convert, using negative keywords, and focusing budget on your highest-performing segments.
• Shorten the sales cycle. Faster decisions = less time your sales team spends per deal = lower CAC. Better onboarding content, clearer pricing pages, and social proof all help.
• Increase CTR. Higher click-through rates lower your CPC through quality score improvements, which directly reduces CAC.

CAC and Your Ad Strategy

CAC should be the guardrail for all your ad spending:

• Set max CPA targets based on your CAC ceiling. If your max CAC is $200, your cost-per-acquisition target in Google Ads should be at or below that.
• Track payback period. A $200 CAC with 2-month payback is very different from $200 CAC with 18-month payback. Short payback lets you reinvest faster.
• Use ROAS as a proxy. If you know your average order value and margin, you can derive your max acceptable CAC from your ROAS targets.

Use our CAC Calculator to calculate yours.