Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the total sales and marketing spend required to acquire one new customer, calculated as total acquisition cost divided by the number of new customers gained in a period.
Customer Acquisition Cost is the price of growth — what you pay, all-in, to win a single new customer. Paired with lifetime value, it determines whether your subscription business actually makes money on each sale.
The CAC formula
CAC totals everything you spent to acquire customers, divided by how many you won:
- CAC = Total sales & marketing spend ÷ Number of new customers acquired
- Example: spending $10,000 to acquire 200 customers gives a CAC of $50.
CAC and the LTV:CAC ratio
CAC only makes sense next to customer lifetime value (LTV). The LTV:CAC ratio shows whether acquisition is profitable; a widely used target is 3:1. If your CAC approaches your LTV, you make little per customer; if CAC exceeds LTV, you lose money on every sale.
How subscriptions improve CAC economics
A one-time buyer must justify CAC on a single order. A subscriber repays it over many billing cycles, so subscription models tolerate higher CAC and make paid acquisition far more sustainable. Reducing churn and raising order value both improve the LTV side of the ratio, letting you profitably acquire more customers.
Frequently asked questions
What is customer acquisition cost?
CAC is the average amount a business spends on sales and marketing to acquire one new customer. It is calculated by dividing total acquisition spend over a period by the number of new customers gained in that period.
How do you calculate CAC?
CAC = total sales and marketing spend ÷ number of new customers acquired in the same period. Include ad spend, agency or tool costs, and the portion of salaries tied to acquisition.
What is a good LTV to CAC ratio?
A commonly cited benchmark is 3:1 — three dollars of lifetime value for every dollar of acquisition cost. Below 1:1 is unprofitable; well above 3:1 may mean you are under-investing in growth.
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