Customer Acquisition Cost (CAC)

Customer acquisition cost or CAC measures what it costs to acquire a new customer. It's calculated by dividing all sales and marketing expenses required to acquire new customers during a period by the number of new customers added in that time frame.

Knowing CAC helps set sales budgets, forecast revenue potential relative to costs, and inform sales process decisions based on projected customer lifetime value. Healthy businesses aim to keep CAC lower than the revenue expected per customer. Tracking CAC over time provides visibility into sales and marketing efficiency. If CAC rises, conversion rates or value per customer may be declining.