Customer acquisition cost

Customer acquisition cost (CAC) measures the average expenditure to gain a new customer, reflecting the efficiency of sales and marketing efforts.

What is customer acquisition cost (CAC)?

Customer acquisition cost (CAC) is the average amount of money a company spends to acquire a single new customer. It’s a core component of your unit economics and helps you understand how effective your sales and marketing functions are at attracting new business.

When put in the right context, CAC can help investors understand the durability of your business model and factors into your valuation during any funding rounds.

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Efficient growth is almost always the name of the game for VC-backed organizations. And while there are many different business metrics you can use to track growth efficiency, customer acquisition cost (CAC) is at the heart of many of them.

Understanding how much it costs to acquire a customer is the first step to getting strategic insight into your growth, profitability, and capital efficiency. CAC is a seemingly simple, often misunderstood, but nonetheless important metric. Here’s how to think about yours and how to put it in the right context for financial analysis and planning.

How to calculate customer acquisition cost

You can calculate CAC by taking the sum of all sales and marketing expenses and dividing it by the total number of new customers signed during the given period.

The formula for calculating customer acquisition cost is simple. However, it’s easy to get your calculation wrong. According to Ben Murray, The SaaS CFO, there are two nuances to the calculation that you can’t forget:

• Making sure CAC is fully-burdened. Don’t just include wages for your sales and marketing team in the CAC calculation. Roll in all relevant expenses, including wages, tax provision, benefits, travel, SEO, paid ads, swag, and everything in between, to get the complete picture of acquisition costs. And remember to include a percentage of executive wages if they’re involved in the selling process.
• Aligning sales cycle to the CAC period. Pay close attention to the length of your average sales cycle when deciding the right time period to use for CAC calculations. If you’re calculating CAC on a one-month time period, but your sales cycle is 50-60 days, you’re missing out on sales expenses that went into closing the relevant deals.

Key takeaways

• Customer acquisition cost (CAC) measures the average expenditure to gain a new customer, reflecting the efficiency of sales and marketing efforts
• Calculating CAC requires summing all sales and marketing expenses and dividing by the number of new customers acquired within a specific timeframe
• It’s crucial to include all relevant costs, such as wages, benefits, travel, and advertising, to obtain a fully burdened CAC
• Monitoring CAC helps in evaluating the scalability of business strategies and planning for sustainable growth
• Using CAC in conjunction with metrics like CAC payback period and LTV/CAC ratio offers a holistic view of business health and growth potential

Examples of customer acquisition costs

With the right formulas in place, you can get a clear view of your customer acquisition cost (CAC). Let’s take a look at a sample calculation for a B2B SaaS company with a 30-day sales cycle.

To calculate CAC, start by adding up the full cost of sales—including payroll, benefits, travel, and other related expenses—along with all marketing costs like agency partnerships, paid media, social campaigns, and team compensation. Then, divide that total by the number of new customers signed during that month.

Now let’s consider a different example: an early-stage startup where the founders are still leading sales and marketing efforts. In this case, you’ll need to estimate how much of their time is dedicated to those areas—say, 30 percent—and include the corresponding portion of payroll and benefits. From there, add in any other marketing costs and divide by the number of new customers to get your CAC.

Why does CAC matter?

Tracking CAC helps you understand more than just how effective your sales and marketing strategies are at bringing in new business—it gives you insight into how scalable those efforts are for long-term growth. If your sales team is only generating enough revenue to maintain your current customer base, you won’t have the budget to grow. And if marketing is spending more to acquire customers than the value of new bookings, it may be time to re-evaluate your strategy.

But CAC doesn’t tell the whole story on its own. The value of this metric depends on the context around it. That’s why some finance experts encourage looking at a broader CAC profile rather than focusing on a single number.

There’s no universal formula for a CAC profile—it depends on your business model. But these are the typical metrics you can add to CAC for deeper context about your business:

• CAC payback period. The amount of time it takes to recoup acquisition costs for the average customer. According to Murray, you can calculate CAC payback on both a logo basis and a dollar basis.
• CAC ratio. The cost of ARR on a dollar basis.
• SaaS magic number. A sales efficiency metric that shows how many dollars worth of revenue you create per dollar spent on sales and marketing.
• LTV/CAC. The ratio of a customer’s lifetime value compared to customer acquisition cost. This shows the ROI of new customers compared to what you spent to bring them in.

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Tracking customer acquisition cost

At a glance, calculating customer acquisition cost (CAC) seems simple: add your costs, divide by your new customers. Basic math, right? But when you dig into the data behind it, things can get complicated quickly. The numbers you need often live across multiple systems and don’t always speak the same language.

Your HR platform houses sales and marketing salaries and commissions. Advertising costs are tucked away in your finance systems. Customer counts live in your CRM. And that’s just the beginning.

You’ll also need to factor in indirect costs. Travel expenses for customer meetings. The cost of tools your team uses to manage leads and nurture prospects. Even hardware and equipment tied to customer acquisition. These costs are usually hidden deep within general business expenses.

And then there are edge cases—like when a team member outside of sales or marketing helps close a deal. Or when part of your marketing budget is aimed at long-term brand building, not immediate acquisition.

There’s no all-in-one system that automatically brings this data together and assigns it to CAC. That’s why it’s always been a people-driven metric—one that rarely offers real-time visibility. In most cases, CAC is something you review quarterly, or monthly if you’re lucky (and even then, it’s often a few weeks behind).

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Four ways you can lower your customer acquisition cost

Benchmarks for customer acquisition cost (CAC) often fall short. There’s just too much variability in how CAC is calculated across industries and business models. A higher CAC isn’t necessarily a bad thing—especially if you’re selling high-ACV enterprise deals and your broader operational KPIs are healthy. Comparing your CAC to companies with lower-price, high-volume models doesn’t give you a true performance snapshot.

Rather than chasing the perfect benchmark, focus on what you can influence. Here are four ways to help reduce your CAC:

1. Focus more on customer retention

Murray says to think about CAC as debt: “If you have poor retention, you’re putting all this money into CAC. You’re losing customers sometimes before they pay back CAC. Now, you’re relying on new customers to fund both those previous ones and the CAC for themselves.”

If you’re struggling with churn, bolstering your CS department could help foster positive customer relationships to improve retention and make CAC more manageable.

2. Determine how much you should spend on ads

Paid ads are often a major marketing expense—and a powerful lever for optimization. Review historical campaign performance, evaluate ROI, and work with your team or partners to refine spend forecasts. Look for ways to improve ROAS and stretch your budget further.

3. Cut back on travel expenses

Before the pandemic, sales travel was a significant contributor to CAC. During lockdowns, teams proved they could connect and close deals remotely. As in-person meetings return, consider whether every trip is essential—or if there’s room to limit travel while still supporting growth.

4. Balance long-term and short-term marketing spend

Not every marketing activity drives immediate conversions, but long-term brand-building still matters. If CAC is climbing, work with your marketing team to temporarily dial down experimental or indirect channels and focus on tactics that are already showing strong returns.

Customer acquisition cost optimization depends on one thing — a deep understanding of what your CAC is and whether or not it’s good in the context of your business.

How to track customer acquisition cost more easily & efficiently

Most FP&A platforms connect to all the key data sources that power your CAC calculation. Clear, simple dialog and intuitive components allow you to configure exactly what is included in your customer acquisition cost without the many dreaded hours of manual data manipulation or Excel magic.

Most FP&A solutions also allow you to build forward-looking models, which let you see what will happen to your CAC if you increase your advertising spend or hire more sales reps. Then you can adjust your marketing and sales budgets to strategically respond to business needs without feeling like you’re writing a check in the dark.

In summary

Understanding your conversion rate and how much it costs to convert potential customers is essential to understanding how efficient your sales and advertising costs are. FP&A solutions integrate with your HR, CRM, and ERP systems to aggregate and normalize your dispersed CAC data.

Once connected, you can check in on your customer acquisition costs any time you like and then make informed, data-driven plans around what you see, ensuring your teams, programs, and budgets are set up for success.

Customer acquisition cost FAQs

How can you project CAC?

You can use a software solution to calculate and track CAC and build forward-looking models to project CAC based on sales rep activity and activations across marketing channels. Custom dashboards and templates allow you to gain the financial insight required to lower CAC as well.

What should be excluded from CAC?

Anything not directly related to marketing and selling to prospective buyers should be excluded from your CAC calculations. This could include any number of expenses, such as:

• Headcount and operational expenses related to customer success and retention
• Marketing expenses that are specifically used for targeting existing paying customers
• Any headcount and operational costs of account managers who are tasked with upselling your existing customer base
• Costs associated with customer training and support (even if it comes from marketing)

What is the formula to calculate CAC?

The CAC formula is: add your cost of sales plus your cost of marketing during a set timeframe together and divide by the number of new customers acquired during that same period of time.