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How to Calculate Customer Acquisition Cost (CAC) Honestly

CAC is sales and marketing spend divided by new customers. What you include decides whether the number helps you or flatters you.

By Muhammad Ahmad. Published . 2 min read.

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Customer acquisition cost is the average amount you spend to win one new customer. The division is trivial. The decisions about what counts as spend, and which customers count, are what make the number useful or misleading.

The basic calculation

Add up everything spent on sales and marketing in a period, then divide by the number of new customers won in that same period.

$30,000 spent, 100 customers won

  1. CAC

    $30,000 ÷ 100 customersequals$300.00

  2. Margin per customer

    $50.00 × 80%equals$40.00/mo

  3. Payback

    $300.00 ÷ $40.00equals7.5 months

The payback line shows how long a customer paying $50 a month, at an 80% gross margin, takes to repay what it cost to win them.

What to include in spend

  • Advertising and sponsorships.
  • Salaries, commissions and bonuses for sales and marketing staff.
  • Marketing and sales tools, such as CRM and email software.
  • Agencies, freelancers and content production.

Leaving out salaries is the most common way CAC ends up looking far cheaper than it really is.

Blended vs paid CAC

Blended CAC divides all spend by all new customers, including those who found you through word of mouth or search. Paid CAC only counts customers from paid channels. Both are useful, but they can tell very different stories.

If $20,000 of that $30,000 went on ads that brought in 40 customers, paid CAC is $500, not $300. At the same $40 of monthly margin, those customers take 12.5 months to pay back. The blended figure hides that paid growth is much more expensive than it looks.

Timing

Sales cycles mean this month's spend often wins next month's customers. For longer cycles, compare spend with customers won a month or a quarter later, and keep the lag consistent.

What a good CAC looks like

There is no single good CAC, because it only makes sense next to what a customer is worth. A $1,000 CAC is excellent for a customer who pays $500 a month for years, and a disaster for one who pays $10 a month. That is why CAC is usually read together with lifetime value and payback period, rather than on its own.

Under 12 months of payback is widely treated as healthy for businesses selling to small and mid-size customers. Businesses selling large annual contracts often accept longer payback, because their customers tend to stay longer and expand.

Tip: Track CAC per channel, not just overall. It shows you where the next dollar of marketing will work hardest.

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