CAC (Customer Acquisition Cost)

What is CAC (Customer Acquisition Cost)?

Customer Acquisition Cost (CAC) is a key business metric that calculates the total cost required to acquire a new customer.

It is typically measured by dividing all sales and marketing expenses by the number of new customers acquired during the same period.

CAC provides insight into how efficiently a company is turning marketing and sales investments into actual customers.

The concept stems from traditional cost accounting and has become especially critical in digital marketing, SaaS, and subscription-based models where recurring revenue must offset upfront acquisition costs to be sustainable.

Key Takeaways

• ‍Measures Acquisition Efficiency: CAC quantifies the financial investment needed to bring in one new customer, offering a clear picture of marketing effectiveness.‍
• Critical for Profitability: A high CAC without a proportionally high customer lifetime value (CLV) can lead to unprofitable growth.‍
• Guides Budget Allocation: Understanding CAC allows businesses to prioritize high-ROI channels and eliminate wasteful spending.

Why It Matters

CAC directly influences how quickly and profitably a company can grow.

In the B2B space, especially on high-CPM platforms like LinkedIn, knowing your CAC ensures you’re not overspending to acquire unqualified or low-value leads.

It informs strategic decisions about scaling, pricing, and customer retention.

For investors and executives, CAC is a core KPI that reveals the sustainability of a company’s go-to-market strategy.

According to HubSpot, companies that track CAC in combination with Customer Lifetime Value (CLV) are 72% more likely to exceed revenue goals¹.

Application in Business

• ‍How it’s used in digital marketing: Marketers calculate CAC to evaluate how much they’re spending per lead and per customer across different channels.
  On LinkedIn, for example, CAC helps determine if high ad costs are justified by high-value conversions or if retargeting would yield better returns.‍
• How sales teams can leverage it: Sales leaders use CAC to identify which lead sources result in the most cost-efficient conversions, helping prioritize outreach strategies and allocate headcount more effectively.‍
• Example: A SaaS company running LinkedIn lead gen ads found its CAC was double the industry average. After reallocating part of the budget to nurturing existing leads via email and retargeting, they reduced CAC by 35% in one quarter.

Summary

Customer Acquisition Cost (CAC) is one of the most important metrics in any performance-driven business.

It captures the real cost of converting prospects into paying customers and helps teams understand whether their marketing and sales strategies are financially viable.

Monitoring CAC allows for smarter budget allocation, clearer ROI evaluation, and more scalable growth strategies.

On platforms like LinkedIn, where acquisition costs can spike quickly, a strong grip on CAC ensures your resources are going toward leads that actually convert.

Ultimately, keeping CAC in check while maximizing Customer Lifetime Value is a key formula for long-term profitability.

FAQs

How do I calculate CAC?

CAC is calculated by dividing your total sales and marketing expenses by the number of new customers acquired during a specific time frame.

For example, if you spent $100,000 to acquire 200 customers, your CAC is $500.

What’s a “good” CAC?

A good CAC depends on your industry and customer lifetime value (CLV).

In general, aim for a CLV:CAC ratio of at least 3:1 to ensure profitability.

Does CAC include salaries?

Yes, if you want an accurate CAC, you should include sales and marketing salaries, software tools, advertising costs, and agency fees.

Exclude only fixed costs not directly tied to acquisition efforts.

How can I lower CAC?

Improve lead quality, shorten sales cycles, and optimize ad spend.

Use retargeting, email nurturing, or organic content to move leads through the funnel more cost-effectively.

Why does CAC matter on LinkedIn?

LinkedIn ads typically have higher CPCs and CPMs, making CAC an essential metric to track.

If your CAC is too high, it may mean you’re targeting too broad or too senior an audience, or your offer isn’t compelling enough.