What is Customer Acquisition Cost (CAC)?

The definition of customer acquisition cost (CAC) is the total expense a business incurs to gain a new customer. This includes all marketing and sales costs such as advertising spend, salaries, software, and overhead associated with converting a prospect into a paying client. In contrast to metrics that measure revenue generation, CAC focuses on the investment side of customer growth. It is a key performance indicator for evaluating the efficiency of customer acquisition strategies.

A high customer acquisition cost may indicate inefficiencies or poor targeting, while a low CAC suggests a streamlined, cost-effective process. CAC is especially critical in subscription-based and B2B business models, where long sales cycles and multiple decision-makers can drive up acquisition costs over weeks or even months.

How to Calculate Customer Acquisition Cost (With Formula)

Customer Acquisition Cost (CAC) measures how much your business spends to acquire a single new customer. The standard formula is:

CAC = Total Sales and Marketing Costs ÷ Number of New Customers Acquired

For example, if your company spends $100,000 on marketing and sales in a quarter and acquires 500 new customers, your CAC is:

$100,000 ÷ 500 = $200 per customer

Include all relevant expenses in your total costs: ad spend, marketing software, salaries, commissions, content production, and even agency fees. The more accurate your inputs, the more actionable your CAC.

This metric is essential for evaluating the efficiency and profitability of your growth strategy. It’s especially critical for SaaS and B2B companies where long sales cycles can inflate costs.

Regularly tracking CAC helps you spot inefficiencies, compare performance across channels, and refine targeting. Ideally, CAC should be monitored alongside metrics like customer lifetime value (CLTV) to assess the long-term return on acquisition spend.

What Is a Good Customer Acquisition Cost?

A “good” Customer Acquisition Cost (CAC) depends on your business model, industry, and average customer value. In general, your CAC should be significantly lower than your Customer Lifetime Value (CLTV), ideally, the CLTV should be at least 3 times your CAC.

Here are rough benchmarks by industry:

• B2C (eCommerce, low-ticket): $10–$100
• B2B SaaS (SMB to mid-market): $200–$2,000+
• Enterprise B2B: $5,000 and up, depending on deal size

A lower CAC usually means your marketing and sales engines are running efficiently. High CACs aren’t inherently bad, if your CLTV is even higher, the investment can still be profitable. However, if CAC starts to creep up while CLTV stagnates, it’s time to revisit targeting, conversion rates, or sales cycle length.

Use industry benchmarks as a reference, but track your CAC trends over time. Rising CAC paired with flat growth is a red flag. On the other hand, a stable or dropping CAC with increasing revenue indicates scalable growth.

How to Reduce Customer Acquisition Cost

Reducing your Customer Acquisition Cost (CAC) means acquiring more customers without increasing your sales and marketing spend, or ideally, reducing it. Here are several proven strategies:

1. Improve Lead Quality
   Target more qualified leads through refined buyer personas, better segmentation, and intent-based marketing. High-quality leads convert faster and cost less over time.
2. Optimize Conversion Rates
   Small changes to landing pages, CTAs, and email workflows can dramatically improve lead-to-customer conversion. Tools like Revenue.io’s Guided Selling can help reps engage more effectively.
3. Shorten the Sales Cycle
   A long sales process drives up costs. Use AI-driven insights to remove friction, automate follow-ups, and prioritize hot leads.
4. Leverage Organic Channels
   Invest in SEO, content marketing, and referral programs. These lower-cost channels reduce your reliance on paid ads over time.
5. Use Automation Wisely
   Sales automation tools like Revenue.io reduce manual work, speed up qualification, and make reps more efficient, allowing you to close more deals with fewer resources.

Lowering CAC isn’t about cutting corners; it’s about operating smarter and scaling sustainably.

CAC vs. CLTV: What’s the Difference?

Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLTV or LTV) are closely related but serve very different purposes in evaluating business performance.

CAC measures how much you spend to acquire a new customer.
CLTV estimates how much revenue that customer will generate over the entire relationship with your company.

Think of CAC as the cost of investment and CLTV as the return. The ratio between the two, CLTV ÷ CAC, is one of the most important metrics in any growth strategy.

For example:

• If your CAC is $300 and your CLTV is $900, your ratio is 3:1.
  
• A healthy ratio is usually 3:1 or higher. Anything lower may signal unprofitable growth.
  

Here’s the key difference:

• CAC tells you if your acquisition efforts are efficient.
  
• CLTV tells you if those efforts are financially sustainable.