Customer Acquisition Cost

Customer Acquisition Cost is the total expense incurred to acquire a new paying customer, including all marketing and sales costs divided by the number of new customers acquired in a given period. This fundamental metric helps product managers and business leaders understand the efficiency of growth investments and assess business model sustainability. CAC includes advertising spend, marketing team salaries, sales team compensation, marketing technology costs, creative production expenses, and related overhead. The calculation is total sales and marketing expenses divided by new customers acquired. For example, spending one hundred thousand dollars to acquire one hundred customers yields a CAC of one thousand dollars per customer. Product managers analyze CAC alongside customer lifetime value to ensure unit economics make sense. The CAC to LTV ratio should typically be at least three to one, meaning customers generate at least three times what it costs to acquire them. Factors affecting CAC include target market characteristics, sales cycle length, marketing channel mix, product pricing, competitive intensity, and brand awareness. Strategies to improve CAC include optimizing conversion funnels, improving lead quality, leveraging product-led growth, building viral loops, enhancing sales processes, and increasing customer referrals. Tracking CAC by channel, segment, and cohort reveals which strategies work best.