Every business needs to answer a simple question: how much does it cost to acquire a new customer? That answer has a name: CAC – Customer Acquisition Cost. It shows how much you spend, on average, to turn a stranger into a paying customer.
What Goes Into CAC
For the period analyzed (month, quarter, etc.), add up all acquisition-related costs and divide by the number of new customers.
Basic Formula:
CAC = (marketing + sales + tools + commissions + fees + promo shipping + proportional team time) ÷ new customers in the period
Tip: Don’t forget to include the “proportional time” of your sales and marketing team. If a salesperson spent half the month prospecting (and the other half serving existing clients), only 50% of their salary should count toward CAC.
Quick Example
- Ads: 6,000
- Tools (CRM, email): 800
- Commission: 1,200
- Proportional salaries: 4,000
- Total: 12,000
- New customers this month: 60
- CAC = 12,000 ÷ 60 = 200
If your average gross profit per first purchase is 20, you’re not paying back your CAC on the first sale – you’ll need repeat purchases or a higher ticket size.
What to Do With That Number
CAC alone means little. Compare it with:
- LTV (Customer Lifetime Value): a healthy rule of thumb is LTV ≥ 3x CAC.
- CAC Payback: how many months does it take for your gross margin to cover the CAC? The shorter, the better for cash flow.
Measure by Channel (and Save Money)
Calculate CAC separately for each source: ads, referrals, organic, events, inbound, outbound. There’s always a “winner” and a “drainer.”
- If Referrals have a CAC of 40 and Ads have a CAC of 260, you already know where to put more effort — and where to optimize or pause.
Common Mistakes
- Mixing everything: counting returning customers as “new.”
- Forgetting indirect costs: tools, free shipping gifts, affiliate bonuses.
- Comparing mismatched periods: a weak month versus a strong quarter.
- Looking only at the top of the funnel: lots of cheap leads that never convert actually raise CAC, not lower it.
- Misaligned messaging: aggressive ads that attract the wrong audience cause churn and inflate CAC.
How to Reduce CAC (Without Tricks)
- Refine offer and message: specific promise for a specific audience converts better.
- Improve conversion rate: clear landing page, social proof, simple checkout, fast responses.
- Speed up follow-up: contacting leads within 1 hour triples your close rate.
- Use tiered packages: “good / better / best” options with clear scopes reduce price discussions.
- Create referral mechanisms: bonuses, upgrades, or free months – usually your cheapest CAC channel.
- Qualify before selling: an early “no” saves money; chasing bad leads costs more.
- Encourage repeat purchases: useful emails, maintenance offers, loyalty clubs – pay CAC once, sell many times.
Simple Dashboard (to Start Today)
- Leads in the period
- Conversion rate per stage (lead → proposal → customer)
- CAC by channel
- Average ticket of first purchase
- Gross margin per order
- CAC payback (in months)
7-Day Action Plan
- Day 1-2: Gather all acquisition costs from the last 30 days; split by channel.
- Day 3: Clean the data (count only new customers). Calculate total and per-channel CAC.
- Day 4: Identify expensive vs. cheap channels; list 3 hypotheses for each (message, audience, offer, response time).
- Day 5-6: Run two microtests (e.g., new creative + 1h response time; shorter form).
- Day 7: Compare CAC by channel and standardize what improved; pause what doesn’t deliver.
Questions That Unlock Better Decisions
- “Which channel brings customers who stay and buy again?”
- “How long does it take to recover CAC – with real incoming cash?”
- “What happens to CAC if I improve proposal-to-close conversion by 20%?”
Why Does This Matter
Because growth that doesn’t pay back CAC is disguised debt. Measuring and adjusting your CAC protects your cash flow, prioritizes channels that bring better customers, and prevents you from buying expensive revenue. When you master this number, you stop driving in the dark – and start scaling responsibly, at the pace your margin can sustain.
