Customer Acquisition Cost (CAC) is a metric used in marketing to measure how much an organization spends to acquire new customers. It is the total cost of sales and marketing efforts, as well as property or equipment, needed to convince a customer to buy a product or service. CAC is calculated by dividing the total expenses to acquire customers (cost of sales and marketing) by the total number of customers acquired over a given time.
Analyzing CAC in conjunction with Lifetime Value (an estimate of how much revenue an account will bring in over its lifetime by continuing to purchase or subscribe for a longer period of time) or Monthly Recurring Revenue (the measurement of revenue generation by month) is a common way to discover whether or not a company is operating efficiently. By understanding CAC at a channel level, a company can balance its budget across different marketing tactics.
CAC is an important metric to consider when determining the profitability of a company because it compares the amount of money spent on attracting customers against the number of customers gained. Understanding CAC provides a business with the ability to fully analyze the value per customer and determine the most cost-effective way to acquire customers. CAC reflects the success of a companys marketing and sales campaign performance.
