Unit Economics
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the total sales and marketing spend required to win one new customer.
Also known as: CAC, customer acquisition cost
Why it matters
CAC is half of the most important ratio in any business model. If it costs more to acquire a customer than they are ever worth, growth makes you poorer, not richer, and spending more on ads only digs the hole faster. For a founder validating a channel, CAC is the reality check on whether a go-to-market motion can actually scale.
Formula
CAC = total sales and marketing spend in a period / number of new customers acquired in that period.
Worked example
You spend $5,000 on ads and sales in a month and sign 25 customers. CAC = $200.
Common mistakes
- Leaving salaries, tools, and overhead out of the spend, which flatters CAC.
- Mixing organic and paid customers so paid CAC looks lower than it is.
- Measuring CAC over too short a window to see the full sales cycle.
Frequently asked questions
How do you calculate CAC?
Divide total sales and marketing spend in a period by the number of new customers won in that period. Include ad spend, salaries, tools, and overhead for an honest figure.
What is a good CAC?
There is no absolute number; CAC only makes sense relative to LTV. A healthy business keeps LTV at least three times CAC and recovers CAC reasonably fast. A low CAC that wins worthless customers is not good.
What is the difference between CAC and CPA?
CPA (cost per acquisition) often refers to the cost of any conversion, like a lead or signup. CAC specifically means the cost to win a paying customer. CAC is the stricter, more meaningful number.
What costs should be included in CAC?
All sales and marketing costs: ad spend, salaries and commissions, software, agencies, and content. Leaving out salaries and overhead is the most common way founders flatter their CAC.
How do you reduce CAC?
Improve targeting, lift conversion rates, lean on organic and referral channels, and shorten the sales cycle. Better retention also helps indirectly by raising the LTV that CAC is judged against.
What is CAC payback period?
The number of months of gross margin it takes to recover the cost of acquiring a customer. Shorter is better because it frees up cash to reinvest. Many SaaS companies aim for under 12 months.
Related terms
More in Unit Economics
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Last updated 2026-06-02 · Back to the glossary