Hong Life CalculatorsUnderstanding the customer acquisition cost (CAC) calculator — concept and principle
Customer acquisition cost (CAC) is the average amount you spend on sales and marketing to win one new customer. Startups, SaaS companies, online shops and investors use it to judge how efficient growth is, to compare channels and to check that a customer will be worth more than it cost to acquire.
How it is calculated
- CAC = (marketing spend + sales cost) ÷ new customers.
- Marketing-only CAC = marketing spend ÷ new customers.
Use costs and customers from the same period, for example one month or one quarter. Marketing spend covers advertising, content, events and agency fees; sales cost covers salaries, commissions and tools of the people who win customers. The calculator works with any currency.
The principle
CAC is an average: total acquisition effort divided by its outcome. Including sales costs gives the "fully loaded" CAC, which is the honest figure when people, not just ads, close deals. Marketing-only CAC is still useful for comparing campaigns. The number becomes meaningful when set against what a customer brings back: lifetime value (LTV), the gross profit a customer generates over the whole relationship. A widely cited rule of thumb in SaaS is that LTV should be about three times CAC or more.
Worked example
- Inputs: marketing spend $30,000, sales cost $20,000, 250 new customers.
- Total acquisition cost = $30,000 + $20,000 = $50,000.
- CAC = $50,000 ÷ 250 = $200.00.
- Marketing-only CAC = $30,000 ÷ 250 = $120.00.
How to read the result
CAC alone is neither good nor bad; compare it with gross profit per customer. If a customer brings $60 of gross profit a month, a $200 CAC is recovered in under four months. Track CAC by channel and over time: rising CAC often means the easiest customers have already been reached or competition for ads has increased. Blended CAC, which also counts customers who arrived for free through word of mouth or organic search, looks lower than paid CAC, so state which one you use.
Common mistakes
- Leaving out salaries, tools or agency fees and calling the result CAC.
- Counting existing customers who upgraded or returned as new customers.
- Comparing spend in one month with customers won months later in a long sales cycle.
- Reporting blended CAC as if it were the cost of paid channels.
Frequently asked questions
What is a good CAC?
One that is comfortably below the gross profit a customer generates over their lifetime. Many SaaS investors look for an LTV to CAC ratio of around 3:1 or higher.
Should CAC include salaries?
For fully loaded CAC, yes: include the share of salaries, commissions and tools spent on winning new customers.
How do I reduce CAC?
Improve conversion rates, focus on the best channels, use referrals and organic content, and stop campaigns whose customers churn quickly.
Sources: David Skok, "SaaS Metrics 2.0 – A Guide to Measuring and Improving What Matters" (forentrepreneurs.com)