Glossary / CAC
CAC(Customer Acquisition Cost)
Customer acquisition cost (CAC) is the total amount a business spends to acquire one new paying customer in a given period. It includes marketing, sales, and ad spend. CAC is calculated as total acquisition spend divided by new customers acquired. Tracking CAC alongside customer lifetime value (LTV) shows whether growth is profitable or burning cash.
Formula
CAC = (Marketing spend + Sales spend) / Number of new customers acquired
Example
If a SaaS business spent $10,000 on marketing and $5,000 on sales in Q1 and acquired 30 new paying customers, CAC is $500 ($15,000 / 30). If LTV is $2,000, the LTV/CAC ratio is 4 — generally healthy.
Why it matters
CAC determines how profitable growth is. A business with $500 CAC and $2,000 LTV is in different shape than one with $500 CAC and $600 LTV. Watching CAC over time also catches diminishing returns from advertising channels.
Frequently asked
What's the difference between blended CAC and paid CAC?
Blended CAC includes all customers (paid + organic + referral) divided by total spend. Paid CAC includes only customers attributed to paid channels. Blended CAC is usually lower; paid CAC is more useful for evaluating ad effectiveness.
What's a good LTV/CAC ratio?
3:1 is the common rule of thumb for SaaS — meaning customers generate 3x more lifetime value than they cost to acquire. Below 3:1 means growth is too expensive; above 5:1 may mean you're under-investing in growth.
Related terms
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