Customer Acquisition Cost (CAC)

Also known as: CACAcquisition CostCost Per AcquisitionCPACost to Acquire

CAC = Total Sales & Marketing Spend ÷ New Customers Acquired

💡The Concept

CAC is the total cost of convincing a potential customer to buy your product. This includes all marketing spend, sales team salaries, tools, and overhead directly tied to acquiring new customers. The formula: CAC = Total Sales & Marketing Spend ÷ New Customers Acquired. A company spending $50K/month on marketing and sales and acquiring 100 customers has a $500 CAC. CAC varies dramatically by channel — paid ads might be $300 CAC while organic content is $30. VCs obsess over CAC because it determines unit economics: if CAC exceeds LTV, every customer you acquire destroys value.

⚠️The Trap

The most dangerous mistake is calculating 'blended CAC' by averaging all channels together. This hides the fact that your Google Ads channel might have a $200 CAC while organic has a $5 CAC. Blended CAC at $100 looks fine — but if you scale by doubling ad spend, CAC doesn't stay at $100; it approaches $200 because you're scaling the expensive channel. Always track CAC per channel. The second trap: excluding sales salaries from CAC. If you have 4 sales reps at $10K/month each and they close 40 deals/month, that's $1,000 in 'hidden' CAC per customer on top of marketing spend.

🎯The Action

Calculate CAC by channel: Paid CAC, Organic CAC, Referral CAC, Outbound CAC. For each: total spend on that channel ÷ customers from that channel. Kill channels where CAC > LTV/3 (not LTV/1 — you need margin for overhead). Track CAC trend monthly — increasing CAC often means market saturation or competitive pressure and requires immediate investigation.

⚡Pro Tips

CAC increases as you scale. The first $10K/month in ads captures the highest-intent searchers; the next $100K/month reaches progressively less qualified audiences. Budget for 30-60% CAC inflation as you 10x your ad spend.

Fully-loaded CAC includes: ad spend, content creation, sales salaries, sales tools, event sponsorships, and even the marketing team's salaries. If you only count 'ad spend CAC,' you're underreporting by 40-60%.

Track CAC Payback Period (CAC ÷ Monthly Gross Profit per customer) alongside CAC. A $1,000 CAC with 3-month payback is better than a $500 CAC with 12-month payback because cash recycles faster.

🚫Common Myths

✗Myth: “Lower CAC is always better”

✓Reality: CAC of $0 usually means you're not investing in growth. A company spending nothing on acquisition grows only through inbound/word-of-mouth — which is slow and unpredictable. The optimal CAC is the highest amount you can spend while maintaining LTV:CAC > 3:1 and payback < 12 months.

✗Myth: “Organic acquisition has zero CAC”

✓Reality: Organic acquisition costs include content writer salaries, SEO tools, video production, social media management, and the opportunity cost of time. A blog post that takes 20 hours to write and ranks #1 for 2 years has a real CAC — it's just amortized differently than an ad click.