Customer Acquisition Cost (CAC)
Total sales and marketing spend divided by the number of new customers acquired in a period.
Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, calculated by dividing all sales and marketing expenses by the number of new customers acquired in a given period.
Formula
CAC = (Total Sales and Marketing Spend) / (Number of New Customers Acquired)
Sales and marketing spend typically includes salaries, commissions, advertising, software/tools, events, content production, and any other cost directly tied to winning new customers. Most companies calculate CAC quarterly or annually.
CAC is critical because it pairs with Lifetime Value (LTV) in the LTV:CAC ratio. If CAC is higher than the value a customer brings over their lifetime, the business model is unsustainable. A healthy SaaS business usually targets an LTV:CAC ratio of around 3:1 or better.
Blended CAC (total spend ÷ total customers) can hide big differences across segments. For example, self-serve customers might have a $500 CAC while enterprise customers might have a $50,000 CAC. To understand true unit economics, RevOps should segment CAC by channel, segment, and customer type.
Ways to improve CAC:
- Increase conversion rates at each funnel stage
- Improve lead quality with better targeting and scoring
- Shorten the sales cycle to reduce per-deal cost
- Shift toward lower-cost acquisition channels
- Improve rep productivity with better tools and processes
RevOps role: RevOps enables accurate CAC by owning the data infrastructure: mapping costs to channels, attributing customers to acquisition sources, and building reports that show CAC trends by segment over time.