What is Customer Acquisition Cost (CAC)?
CAC is the average cost to acquire one new paying customer. It's calculated by dividing total sales and marketing expenses over a period by the number of new customers acquired during that same period. A lower CAC relative to customer lifetime value indicates a healthy, scalable business.
What is a good CAC for a SaaS or service business?
A healthy benchmark is that your Customer Lifetime Value (LTV) should be at least 3× your CAC. If your average customer pays you $3,000 over their lifetime, a CAC under $1,000 is generally sustainable. Ratios below 3:1 suggest you're spending too much to acquire customers relative to what they're worth.
How often should I calculate my CAC?
Calculate CAC monthly or quarterly to spot trends. Rising CAC over time often signals that you're exhausting your most cost-effective channels and need to diversify. Compare CAC by channel (paid search, social, referral) to identify which acquisition methods are most efficient.
Should I include employee salaries in CAC?
Yes — the fully-loaded CAC includes salaries and overhead for everyone involved in sales and marketing. A common mistake is calculating CAC using only ad spend, which understates the true cost of acquisition and leads to poor decisions about channel investment.