The formula
CAC = (sales costs + marketing costs in a period) / new customers won in that period
How to calculate customer acquisition cost
Pick a period, usually a month or a quarter. Add up everything you spent to win new customers in it, then divide by the number of new customers you won in the same period.
Worked example, with made-up figures: a team of 3 reps costs $36,000 a month in pay and commission, and they spend about 70% of their time on new business, so $25,200 of that counts. Add $6,000 of ads, $2,000 for an event and $800 of sales tools, and the month costs $34,000. Over a quarter that's $102,000. The team won 40 new customers that quarter, so CAC is $102,000 / 40 = $2,550.
That number only means something next to what a customer brings in. If each new customer is worth $300 a month in gross profit, it takes $2,550 / $300 = 8.5 months to earn the cost back. That's the payback period.
How to measure CAC in your team
The formula is simple. What goes into it isn't, so write your rules down once and keep them.
- Count the people. Pay and commission for the time reps spend winning new customers belong in CAC. Time spent looking after existing customers doesn't.
- Count the spend: ads, events, lists, sales and marketing tools, and any agency or freelancer working on new business.
- Leave out what it costs to deliver the product. That belongs in gross profit, not CAC.
- Count customers, not deals. A customer who buys twice in the quarter is one new customer.
- Allow for the lag. If your deals take two months to close, this quarter's customers came from last quarter's spend. Use a rolling three or six months so one busy month doesn't swing it.
- Work it out by channel as well as in total. Referrals, ads and cold outreach usually cost very different amounts per customer, and the total hides which one to grow.
What is a good customer acquisition cost?
We don't print an industry figure for CAC. One number averaged across other markets, prices and deal sizes tells you nothing about yours. What good looks like is set by what a customer is worth to you.
| Who's looking | What they check | What good looks like |
|---|---|---|
| Founder or owner | CAC against gross profit per customer | Payback shorter than the time a typical customer stays, and cash to cover the gap |
| Sales manager | CAC by channel, each quarter | The cheapest channel growing, and the total flat or falling while new customers rise |
| Rep | Meetings and win rate, the parts of CAC they move | More deals from the same number of meetings |
| Marketing | Cost per lead, and the share of leads that become customers | Cheaper leads that still turn into customers at the same rate |
What pushes customer acquisition cost up, and what brings it down
CAC rises when spend goes up faster than new customers do. The usual causes:
- Win rate slipped, so each customer takes more meetings and more rep time.
- Deals take longer, so reps carry more open deals for each one they close.
- Budget moved to a channel that brings leads but fewer customers.
- Time spent on existing customers is being counted as new business.
And the levers that bring it down:
- Ask every happy customer for an introduction. A referred prospect costs a rep's time and nothing else.
- Qualify earlier, so reps spend their meetings on buyers who can say yes.
- Put a dated next step on every open deal, so fewer go quiet after a proposal.
- Cut the channel with the highest CAC before you cut the one with the lowest.
Work out your CAC
CAC: $2,550
- $102,000 / 40 new customers
- Payback: 8.5 months
Where it shows up in your week
CAC moves with the rate at each step before a sale. The funnel shows the rate at each step from appointment to deal over the last 7, 30 or 90 days, and names the step with the lowest rate.
Related KPIs, terms and tools
Questions managers ask
Sources
The page states no outside figure, so there's nothing to cite here.