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Intermediate

What is CAC

Full name: Customer Acquisition Cost

Also known as: customer acquisition cost, acquisition cost

Definition

CAC (customer acquisition cost) is what you spend on marketing and sales to win one new customer: a period's spend divided by the new customers it brought.

Why it matters

CAC means little on its own.

Common mistakes

Dividing only the ad spend by the new customers and calling it the full CAC.

Related terms

Worked exampleIllustration

The full CAC of a fictional studio's month

A fictional neighbourhood pilates studio wins 15 new members in one month, and each member leaves ₪200 gross profit a month. The numbers are invented.

  1. Meta

    ₪3,000 of Meta ads brought 100 chats and 5 members.

    ₪3,000

  2. Google

    ₪3,200 of Google search ads brought 40 leads and 10 members.

    ₪3,200

  3. Other costs

    A freelance designer for the ads, and the booking and WhatsApp Business tools.

    ₪800 + ₪500

  4. Ads only

    Ad spend divided by all 15 new members.

    6,200 ÷ 15 ≈ ₪413

  5. Full CAC

    Everything spent to win them, divided by the same 15.

    7,500 ÷ 15 = ₪500

  6. By channel

    Ad spend per member, channel by channel.

    Meta ₪600, Google ₪320

  7. Payback

    At ₪200 a month a new member pays back the ₪500 during month 3. The owner's hours answering 140 chats are counted, not priced.

    ₪200, ₪400, ₪600

A member who leaves after two months was a loss.

Illustration

What a member brings back against the CAC

Everything spent₪7,500

New members15

CAC₪500

The member stays 2 months and leaves ₪400 of gross profit, less than the ₪500 it cost to win them: a loss. A member pays the ₪500 back only during month 3.⁨CAC ₪500⁩123456789101112⁨Months the member stays, ₪200 gross⁩⁨profit each⁩

The member stays 2 months and leaves ₪400 of gross profit, less than the ₪500 it cost to win them: a loss. A member pays the ₪500 back only during month 3.

The fictional studio's month: everything spent on winning new members, divided by the members it won, next to the gross profit each member leaves every month.

What goes into the full CAC

  • Ads only: ⁦₪6,200 ÷ 15 ≈ ₪413⁩
  • Full CAC: ⁦₪7,500 ÷ 15 = ₪500⁩
  • Ads only, by channel: Meta ₪600, Google ₪320 a member
Ad spend alone makes CAC look lower. The owner's hours answering chats are counted here, with no shekel value put on them.

Definition

CAC adds up everything spent on marketing and sales in a period and divides it by the new customers won in that period. It counts ad spend, pay for the people who market and sell, agencies and freelancers, creative work and the tools used to reach and answer customers. It does not count general overhead such as rent. In a small business the owner often answers the leads, so write those hours next to the number even when you do not price them. Blended CAC divides by all new customers, paid CAC only by those who came from paid channels, and CAC by channel shows which channel is getting dearer.

Why it matters

Compare it with the gross profit a customer brings over the time they stay, and with the months it takes to earn it back. If customers leave before they pay back what it cost to win them, every new customer makes the business poorer, even in a month that looks busy. The LTV and LTV to CAC entries in the finance section take that comparison further.

Directly related: LTV:CAC, LTV, CPA.

Formula

CAC = Total Acquisition Costs / Number of New Customers Acquired

Improvement tips

  • Count every marketing and sales cost: ads, freelancers, creative work and tools, not only the ad spend.
  • Calculate CAC for each channel next to the blended figure.
  • Write the owner's hours answering leads next to the number, even without a price.
  • Compare CAC with the gross profit a customer brings over the months they stay.

Common mistakes

  • Adding general overhead such as rent, which is not a cost of winning customers.
  • Measuring CAC once a year, so a channel that got more expensive this quarter stays hidden.
  • Judging CAC without the months it takes a customer to pay it back.
CAC vs CPA

Related terms

FinanceAdvanced

LTV:CAC

LTV:CAC is the ratio of the gross profit a customer brings over the relationship (LTV) to what it cost to win them (CAC). 3:1 is a common SaaS rule of thumb.

FinanceIntermediate

LTV

LTV (customer lifetime value) is the gross profit one customer brings over the whole relationship. You compare it with the cost of winning that customer (CAC).

MarketingIntermediate

CPA

CPA (cost per acquisition) is what you pay on average for one conversion you chose to count, such as a booking or a sale: spend divided by those conversions.

FinanceBeginner

Gross Profit

Gross profit is revenue minus the cost of goods sold (COGS): what is left from sales after goods, materials and direct labour. Rent and salaries come from it.

FinanceBeginner

Overhead

Overhead is the indirect cost of running a business, like rent, bookkeeping, insurance and admin salaries, that cannot be traced to one product or customer.

MarketingIntermediate

Retargeting

Retargeting is showing ads to people who already visited your site or engaged with your page, to bring back those who left without buying or booking.

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Quick check

What goes into CAC?

Choose an answer

Frequently asked questions

What does CAC mean in plain words?
What it costs, on average, to win one new customer. If a month's marketing and sales cost ₪7,500 and brought 15 new customers, the CAC is ₪500.
Can I estimate CAC before I launch?
Only roughly. Run a small test budget, read what a click costs in your own account and how many clicks became customers, and build the estimate from that instead of from benchmarks found online.
What should be included in CAC?
Ad spend, pay for the people and freelancers who market and sell, creative work, and the tools you use to reach and answer customers. Leave general overhead such as rent out.
Should I count my own time?
At least write it down. In a small business the owner often answers the WhatsApp chats and the calls, and a CAC that ignores those hours looks cheaper than it is.
What is the difference between blended and paid CAC?
Blended CAC divides the cost by all new customers, including those who came by word of mouth. Paid CAC divides it only by the customers who came from paid channels. The blended figure can look healthy while paid channels lose money.
What goes wrong when a business ignores CAC?
Cash leaves before customers pay it back. If a customer takes three months to earn back their cost and many leave after two, the business pays for growth it never recovers, even while sales rise.
How often should I calculate CAC?
Monthly, and by channel. A channel that got more expensive this quarter disappears inside a yearly average.
How do I lower my CAC?
Raise the share of the leads you already get who become customers, answer them faster, and move budget to the channel with the lower cost per customer. Retargeting people who already visited can lower the cost of some customers, so test whether it adds bookings instead of counting on it.
What is the difference between CAC and CPA?
CPA is the cost of one conversion in one campaign. CAC is the cost of one new customer for the whole business in a period. The CAC vs CPA comparison sets them side by side.
Is there a good CAC number?
Not on its own. A CAC is good when a customer's gross profit over the time they stay covers it with room to spare. The LTV to CAC entry in the finance section shows how to compare the two.
Do I need an accountant to calculate CAC?
Not for the calculation: a sheet with the month's marketing and sales costs and the list of new customers is enough. An accountant helps if you are not sure which expenses in the books are marketing and sales.
Is tracking CAC expensive?
No. The costs are in your bank statement and the ad platforms, and the new customers are in your calendar or your sales records. The effort is keeping the same definition every month.

Sources: Jeff Jordan, Anu Hariharan, Frank Chen and Preethi Kasireddy, "16 Startup Metrics", Andreessen Horowitz, August 2015 (a16z.com)

Last reviewed: 2026-09-24

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