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Definition of customer acquisition cost (CAC)
Customer Acquisition Cost (CAC) is a crucial metric for marketers that quantifies the average expense incurred in acquiring a new customer. It encompasses the total marketing and sales costs, including advertising, promotions, salaries, and other related expenses, divided by the number of customers acquired during a specific period. CAC helps marketers evaluate the effectiveness of their marketing strategies, optimize their budget allocation, and determine the profitability and scalability of their business. By monitoring and minimizing CAC, marketers can ensure a higher return on investment (ROI) and drive sustainable growth for their organization.
An example of customer acquisition cost (CAC)
Growth Method spent $10,000 on marketing and sales efforts in a month, which resulted in acquiring 50 new customers. Therefore, their CAC would be $200 per customer ($10,000 / 50).
How does customer acquisition cost (CAC) work?
Customer acquisition cost (CAC) works by calculating the total expenses incurred in acquiring a new customer, divided by the number of customers acquired during a specific period. For marketers, this metric is crucial in determining the effectiveness of their marketing strategies and campaigns. By understanding the CAC, marketers can optimize their marketing budget, allocate resources more efficiently, and identify the most cost-effective channels for acquiring new customers. Ultimately, a lower CAC indicates a more successful marketing strategy, while a higher CAC may signal the need for adjustments or improvements in marketing efforts.
Expert opinions and perspectives
Here are how some of the world’s best marketing and growth professionals think about customer acquisition cost (CAC).
- “The easiest way to reduce your customer acquisition cost is to stop spending money on marketing tactics that don’t work.” – Neil Patel, Co-founder of Crazy Egg, Hello Bar, and KISSmetrics
- “Customer acquisition cost is the new rent. It’s the biggest fixed cost in many businesses, and if you don’t keep it in check, it can bankrupt you.” – Noah Kagan, Founder of AppSumo and SumoMe
- “The best way to lower your customer acquisition cost is to focus on delighting your customers so they become your best marketing channel.” – Dharmesh Shah, Co-founder and CTO of HubSpot
Questions to ask yourself
As a modern growth marketing or agile marketing professional, ask yourself the following questions with regard to customer acquisition cost (CAC):
- What is the current CAC for each marketing channel, and how does it compare to the industry benchmarks and our competitors?
- What is the relationship between CAC and customer lifetime value (LTV), and is the ratio sustainable for long-term growth?
- How can we optimize our marketing efforts to reduce CAC while maintaining or increasing the quality of acquired customers?
- Are there any untapped marketing channels or strategies that could potentially lower our CAC and diversify our customer acquisition sources?
- How can we improve our targeting, messaging, and overall marketing strategy to attract customers with a lower CAC and higher LTV?
Here are some related articles and further reading around customer acquisition cost (CAC) that you may find helpful.
- The Complete SaaS Guide to Calculating Customer Acquisition Cost (CAC) and Where Most Companies Go Wrong
- The Startup Killer: The Cost of Customer Acquisition
- How to Calculate Customer Acquisition Cost and Lifetime Value
- What is Customer Acquisition Cost (CAC)?
- How to Calculate Customer Acquisition Cost: A Step-by-Step Guide
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