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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. It’s also important to understand complementary metrics like churn rate, which reflects how well you’re retaining the customers you’ve acquired.
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. The channels you choose to prioritise have a direct and lasting effect on CAC, so it’s worth treating channel selection as a CAC lever in its own right, not just a tactics list.
CAC benchmarks by business model
CAC varies enormously by go-to-market motion. These are directional industry benchmarks, not universal targets, since your own healthy CAC depends on your pricing, margins and customer lifetime value.
| Business model | Typical CAC range | Typical payback period |
|---|---|---|
| Self-serve / PLG | $50–$400 | 1–6 months |
| SMB SaaS | $200–$1,200 | 6–12 months |
| Mid-market B2B SaaS | $1,000–$10,000 | 12–18 months |
| Enterprise SaaS | $10,000–$50,000+ | 18–36 months |
Across all four models, the constant to watch is the LTV:CAC ratio: a ratio of 3:1 or higher is the widely accepted marker of a sustainable acquisition engine, regardless of how big or small the absolute CAC number is.
Expert opinions and perspectives
Here are how some of the world’s best marketing and growth professionals think about customer acquisition cost (CAC).
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“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
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“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
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“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):
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What is the current CAC for each marketing channel, and how does it compare to the industry benchmarks and our competitors?
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What is the relationship between CAC and customer lifetime value (LTV), and is the LTV:CAC ratio sustainable for long-term growth?
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How can we optimize our marketing efforts to reduce CAC while maintaining or increasing the quality of acquired customers?
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Are there any untapped marketing channels or strategies that could potentially lower our CAC and diversify our customer acquisition sources?
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How can we improve our targeting, messaging, and overall marketing strategy to attract customers with a lower CAC and higher LTV?
Additional reading
Here are some related articles and further reading around customer acquisition cost (CAC) that you may find helpful.
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Formula to calculate and reduce customer acquisition cost (CAC) by Paddle
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Customer Acquisition Cost – Definition, FAQs & How HubSpot Helps
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Customer Acquisition Cost (CAC): Formula, Benchmarks & How to Lower It
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About Growth Method
Growth Method is the agentic marketing platform for B2B teams: plan your strategy, ship campaigns, and learn what works, all in one place, for people and agents. CAC isn’t a number to calculate once and file away, it’s a metric that should move with every campaign you run. Growth Method’s plan-launch-analyse workflow logs CAC and your other core metrics as a baseline before a campaign goes live, then measures the after, so you know whether a channel change, a pricing tweak, or a landing page rewrite actually lowered your cost to acquire, instead of guessing.
We are on-track to deliver a 43% increase in inbound leads this year. There is no doubt the adoption of Growth Method is the primary driver behind these results.
Laura Perrott, Colt Technology Services
Get started to turn your next CAC-reduction idea into a tracked campaign, not a guess.
Frequently asked questions
What is customer acquisition cost (CAC)?
Customer acquisition cost (CAC) is the average expense a business incurs to acquire one new customer, calculated as total sales and marketing costs divided by the number of new customers acquired in a given period.
What is the CAC formula?
CAC = Total sales and marketing costs / Number of new customers acquired in the same period. For example, spending $10,000 to acquire 50 customers gives a CAC of $200 per customer.
What counts as a good CAC or LTV:CAC ratio?
There is no universal good CAC since it varies by industry, pricing model and customer lifetime value, but a widely used benchmark is an LTV:CAC ratio of at least 3:1, meaning a customer is worth at least three times what it costs to acquire them.
How does CAC differ by business model?
Self-serve and PLG products typically run the lowest CAC with fast payback, SMB and mid-market B2B SaaS sit in the middle, and enterprise sales motions carry the highest CAC but can justify it with larger contract values and longer customer lifetimes.
How can I reduce CAC?
Focus on optimising conversion rates through your existing funnel, doubling down on channels with proven payback, improving targeting and messaging so you attract customers who convert more easily, and strengthening retention so the LTV side of the ratio also improves.