Quick answer: Customer Acquisition Cost (CAC) is the total amount a business spends to acquire one new customer. CAC includes all marketing and sales spend (ads, salaries, software, agencies, content production) divided by the number of customers gained. Where CPA measures cost per conversion in a single campaign, CAC measures the full cost per customer across the whole acquisition machine.
How to Calculate CAC
The formula: (Total marketing + sales costs) ÷ (Number of new customers acquired). If you spent £10,000 on marketing and sales last quarter and acquired 50 new customers, CAC is £200.
Three common CAC variations:
- Blended CAC: total spend across all channels divided by total new customers. Easiest to calculate.
- Paid CAC: paid spend only divided by customers attributed to paid channels. More precise for ROAS analysis.
- Channel-specific CAC: spend on one channel divided by customers from that channel. Useful for budget allocation.
How CAC Differs from CPA
CPA (Cost Per Acquisition) typically measures cost per conversion within a single campaign. A campaign might have a £40 CPA. CAC measures the full business cost: salaries, software, content production, and channel spend together. The same business with £40 CPA might have a £180 CAC once everything is included.
Frequently Asked Questions
What is a good CAC?
Depends entirely on customer lifetime value (LTV). The healthy benchmark is LTV:CAC ratio of 3:1 or higher. If a customer is worth £600 over their lifetime, a £200 CAC is healthy. £300 is borderline. £600+ means the business is losing money on every customer.
How do I lower CAC?
Three high-impact levers. Improve conversion rates (better landing pages, sharper messaging). Increase average customer value (upsell, cross-sell, retention). Optimise channel mix (shift budget toward channels with the lowest CAC for your business model).
Should I measure blended CAC or paid CAC?
Both, for different purposes. Blended CAC is the truer business metric. Paid CAC helps allocate marketing spend across channels. Mature SaaS and ecommerce businesses typically report both.
How is CAC payback period calculated?
Months until a customer's contribution covers their CAC. If CAC is £200 and average customer contributes £50/month after costs, payback is 4 months. Shorter payback = healthier business.
Take this further
CAC is one of the most important metrics for any business running paid acquisition. We help clients track it cleanly alongside paid spend.
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