Glossary
Customer acquisition cost (CAC)
Customer acquisition cost (CAC) is the average sales and marketing cost of winning one new customer, calculated by dividing total sales and marketing spend in a period by the number of new customers won in that period.
What Is Customer Acquisition Cost (CAC)?
In short Fully loaded CAC includes everything spent to win customers: salaries, commissions, ads, tools, data, agencies and events.
Some teams also track paid CAC (ad spend only) or CAC per channel. Whatever you include, keep it consistent, and if your sales cycle is long, match spend to the period when it produced customers.
CAC only means something next to what a customer is worth. The LTV:CAC ratio compares customer lifetime value with CAC, and CAC payback, the months of gross margin it takes to earn back CAC, shows how much cash growth ties up. Stripe notes that SaaS businesses generally aim for a 3:1 LTV:CAC ratio and that many try to pay back CAC in less than 12 months.
Customer Acquisition Cost Example
CAC = total sales and marketing costs in the period / new customers acquired in the period. CAC payback (months) = CAC / (monthly revenue per customer x gross margin)Example: a company spends $120,000 on sales and marketing in a quarter and wins 40 new customers, so CAC is $3,000. Each customer pays $500 a month at an 80% gross margin, so CAC payback is $3,000 / ($500 x 0.8) = 7.5 months.
Customer Acquisition Cost in Practice
For outbound teams, CAC breaks down into cost per meeting and meeting-to-customer conversion. If an outbound program costs $15,000 a month and books 50 meetings, each meeting costs $300; if 1 in 10 meetings becomes a customer, outbound CAC is $3,000 before the account executive's time.
FAQ
How do you calculate customer acquisition cost?
Add up all sales and marketing costs for a period, including salaries, commissions, ads and tools, then divide by the number of new customers won in that period.
What is a good LTV to CAC ratio?
3:1 is the common target for SaaS: each customer brings in three times what it cost to win. Treat it as a rule of thumb, since the right ratio depends on your business model and how fast you need to grow.
What is CAC payback period?
The number of months of gross margin from a customer it takes to earn back what you spent to acquire them. Divide CAC by monthly revenue per customer times gross margin.
What costs are included in CAC?
Sales and marketing salaries and commissions, ad spend, content, events, acquisition tools and data, and agency fees. Leave out customer support, infrastructure and R&D, and count only customers who became paying, not trial sign-ups.
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Related
- GTM Glossary
Every GTM term, grouped by topic.
- Customer lifetime value (CLV or LTV)
- Churn rate
- Pipeline generation
- Product-led growth (PLG)
- Sales cycle
- Ken pricing
Sources
| Source | Checked |
|---|---|
| Stripe: CAC in SaaS, how to calculate and benchmark it | |
| Stripe: What is the CAC payback period | |
| ChartMogul: Customer acquisition cost |
Changelog
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