CAC (Customer Acquisition Cost)
The total cost of acquiring a new customer, including marketing and sales expenses.
What You Need to Know
CAC measures how much you spend to acquire one paying customer. It's critical for understanding marketing efficiency and business sustainability.
Formula: CAC = Total Marketing & Sales Costs ÷ Number of New Customers
Example:
- Monthly ad spend: $5,000
- New customers acquired: 200
- CAC = $5,000 ÷ 200 = $25 per customer
What's a Good CAC? Your CAC should be significantly less than your customer lifetime value (LTV):
- CAC:LTV Ratio = 1:3 or better (spend $1 to earn $3)
- 1:5+ = Excellent (scale aggressively)
- 1:3 = Good (healthy business)
- 1:1.5 = Borderline (optimize or reduce CAC)
- <1:1 = Unprofitable (losing money on each customer)
Sources & References
This information is sourced from authoritative government and academic institutions:
- sba.gov
https://www.sba.gov/business-guide/manage-your-business/marketing
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