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Customer Acquisition Cost (CAC)

What is Customer Acquisition Cost (CAC)?

Customer Acquisition Cost (CAC) is the total cost associated with acquiring a new customer, including marketing, advertising, and sales costs. It is typically expressed as a cost per customer or cost per acquisition. CAC is an important metric for businesses to measure and track, as it helps them understand the effectiveness of their customer acquisition strategies. It is calculated by dividing the total cost of acquiring new customers (such as marketing and sales expenses) by the number of new customers acquired.

Why is CAC important?

Customer Acquisition Cost is important because it helps businesses understand the cost of acquiring new customers and the return on investment (ROI) of their marketing efforts. It also helps businesses identify areas where they can improve their marketing strategies to reduce their CAC and increase their ROI.

How can I use CAC?

Here are a few ways you can use CAC to effectively run your business:

  1. Determine the profitability of your customer acquisition efforts: By calculating your CAC and comparing it to the lifetime value (LTV) of your customers, you can determine the profitability of your customer acquisition efforts. If your CAC is lower than your LTV, then your business is generating a positive return on investment (ROI) for each new customer. If your CAC is higher than your LTV, then you may need to adjust your customer acquisition strategy to bring down costs or increase the value of your customers.
  2. Identify areas for improvement: By tracking your CAC over time, you can identify areas where you can improve your customer acquisition efforts. For example, if you see that your CAC is consistently higher for certain marketing channels, you may need to adjust your strategy for those channels to bring down costs.
  3. Set customer acquisition goals: By setting CAC goals and tracking your progress, you can ensure that you are effectively acquiring new customers and meeting your business goals.
  4. Make data-driven decisions: By tracking and analyzing your CAC, you can make data-driven decisions about your customer acquisition strategy, such as which channels to invest in or which offers to promote.
  5. Optimize your sales and marketing efforts: By understanding your CAC, you can optimize your sales and marketing efforts to maximize your ROI and acquire new customers in the most cost-effective way possible. Overall, using CAC can help you make informed decisions about your customer acquisition efforts and run your business more effectively.

Brief history of CAC

The concept of CAC has been around for many years, but it has gained wider recognition in recent years as businesses have become more focused on measuring the ROI of their marketing efforts.

In the early days of e-commerce, CAC was primarily used by online businesses to measure the effectiveness of their customer acquisition efforts and make data-driven decisions about how to optimize their marketing spend. As digital marketing has become more complex and sophisticated, CAC has become an increasingly important metric for businesses of all sizes and industries, as it provides insight into the cost and effectiveness of customer acquisition efforts.

Today, CAC is widely used by businesses to measure the profitability of their customer acquisition efforts, set goals, and optimize their marketing and sales efforts. It is an essential part of any business's marketing strategy, and is used to inform decisions about how to acquire new customers in the most cost-effective way possible.

Related Terms

Return on Investment (ROI)

Cost per Lead (CPL)

Conversion Path