Revenue
Customer acquisition cost (CAC)
Definition of
Customer Acquisition Cost (CAC) is a metric used to calculate the expenses involved in acquiring a new customer. It is determined by dividing the total sales and marketing costs by the number of new customers acquired in a given period. This metric is important for businesses to evaluate their sales and marketing efficiency and profitability of acquiring new customers. If CAC is greater than the average customer lifetime value, it indicates that the company is spending too much on sales and marketing or needs to adjust its strategy. Conversely, if the CAC is lower than the CLV, the company has a profitable customer acquisition strategy and should consider investing more in sales and marketing to accelerate growth. The formula for calculating Customer Acquisition Cost is: CAC = Total Sales and Marketing Costs / Number of New Customers Acquired For example, if a company spent $10,000 on sales and marketing activities during a month and acquired 100 new customers during the same period, the CAC would be $100 per new customer.
CAC is a calculation of much your business spends to acquire a new customer. The lower this number is, the better.
