Introduction to the Customer Acquisition Cost (CAC) KPI
The Customer Acquisition Cost (CAC) KPI measures how much a business spends to acquire a new customer. It’s one of the most important growth metrics because it determines whether your marketing and sales efforts are sustainable, efficient, and profitable.
What Is Customer Acquisition Cost (CAC)?
CAC represents the average cost required to convert a prospect into a paying customer. The standard formula is:
CAC = Total Sales & Marketing Costs ÷ Number of New Customers Acquired
This includes advertising spend, sales team salaries, software tools, content production, agency fees, and any other expenses tied directly to customer acquisition.
Why This KPI Matters
CAC helps businesses understand the financial efficiency of their growth strategy. It provides insights into:
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The true cost of gaining one new customer
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Profitability and scalability of marketing channels
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Effectiveness of sales funnels and messaging
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Budget planning and resource allocation
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Long-term viability of the business model
High CAC can signal overspending or poor targeting, while a low CAC reflects strong marketing performance and efficient sales processes.
How to Use This KPI Effectively
Teams often analyze CAC by channel, campaign, or customer segment to identify high-return investments. When combined with Customer Lifetime Value (CLV), Conversion Rate, and Cost per Lead (CPL), CAC becomes a powerful metric for optimizing growth, forecasting revenue, and improving profitability.