Glossary
What is CAC (customer acquisition cost)?
CAC: CAC (customer acquisition cost) is the average cost of winning one new customer: all sales and marketing spend in a period divided by the number of new customers won in that period.
CAC is what it costs, on average, to win one new customer. Take all sales and marketing spend in a period and divide it by the number of new customers won in the same period.
CAC = sales and marketing spend ÷ new customers
The spend is fully loaded: salaries and commissions of the sales and marketing team, advertising, events, agencies, partner commissions, and the tools and overhead those teams use. Costs that arise after the sale, such as support for existing customers, are not part of CAC.
A worked example
A software company calculates its CAC for the last twelve months, by channel:
| Channel | Spend | New customers | CAC | Payback |
|---|---|---|---|---|
| Direct sales | €470,000 | 20 | €23,500 | 14.2 months |
| Partners | €168,750 | 15 | €11,250 | 6.8 months |
| Blended | €638,750 | 35 | €18,250 | 11.0 months |
Payback is CAC ÷ (monthly revenue per customer × gross margin). With €1,975 a month and an 84% gross margin, a customer returns €1,659 of gross profit a month, so €18,250 ÷ €1,659 = 11.0 months.
The blended figure looks healthy, yet direct sales need more than a year to repay themselves. An investor will ask for this split, so keep it ready in the appendix.
How to calculate CAC well
- Match the periods. Spend and new customers should come from the same window. If deals take months to close, use a longer window or shift the spend back.
- Include every sales and marketing cost, salaries and commissions as well as ads.
- Say which version you show: blended, with all new customers, or paid, with only customers from paid channels.
- Pair CAC with payback and LTV. CAC alone does not tell you whether a customer is worth the price.
- Split by channel or segment when they differ.
Typical mistakes
- Counting ad spend only and leaving out the sales team.
- Dividing this quarter's spend by this quarter's customers when the deals close months later.
- Counting renewals or upgrades as new customers.
- Showing a blended CAC that hides a channel which does not pay back.
- Comparing CAC with revenue instead of gross profit.
Whether a CAC is affordable depends on what a customer returns, which is the question behind LTV and unit economics.
FAQ
Frequently asked questions
How do you calculate CAC?
Divide all sales and marketing spend in a period by the number of new customers won in that period. If you spent €638,750 and won 35 customers, CAC is €18,250.
What is a good CAC?
A CAC is good when the customer repays it quickly and earns much more than it cost. Judge it with CAC payback and LTV/CAC, not on its own. €18,250 is cheap for a customer worth €57,000 in lifetime gross profit and expensive for one worth €20,000.
What is the difference between blended and paid CAC?
Blended CAC divides all sales and marketing spend by all new customers, including those who found you through word of mouth or search. Paid CAC divides only the spend on paid channels by the customers those channels brought in. Paid CAC is usually higher.
What is CAC payback?
CAC payback is the number of months a customer needs to repay its CAC out of gross profit. You divide CAC by monthly revenue per customer times gross margin. In the example it is €18,250 ÷ €1,659 = 11.0 months.
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