Customer Acquisition Cost (CAC)
What It Is:
The Customer Acquisition Cost (CAC) is a metric used to determine the total average cost your company spends to acquire a new customer.
How to Calculate It:
Take your total sales and marketing spend for a specific time period and divide by the number of new customers for that time period.
Sales and Marketing Cost =
Program and advertising spend + salaries + commissions and bonuses + overhead in a month, quarter or year
New Customers =
Number of new customers in a month, quarter, or year
Formula:
sales and marketing cost ÷ new customers = CAC
Let’s Look at an Example:
Sales and Marketing Cost = $300,000
New customers in a month = 30
÷ CAC = $300,000 ÷ 30 = $10,000 per customer
What This Means and Why It Matters:
CAC illustrates how much your company is spending per new customer acquired. You want a low average CAC. An increase in CAC means that you are spending comparatively more for each new customer, which can imply there’s a problem with your sales or marketing efficiency.