customer acquisition cost
The total cost of acquiring a new customer, including marketing and sales expenses, divided by the number of new customers acquired.
Example
“With $500,000 in marketing spend and 1,000 new customers, the CAC was $500 per customer.”
Memory Tip
CAC = how much you SPEND to get each customer. Must be less than LTV to be profitable.
Why It Matters
Understanding customer acquisition cost helps you evaluate whether a business is spending money wisely on growth. For consumers, this concept explains why companies invest heavily in advertising and sales efforts, which ultimately affects product prices and service quality. Knowing this metric helps you appreciate the true cost of doing business and why some companies offer discounts to first-time customers.
Common Misconception
Many people think customer acquisition cost only includes direct advertising spending, but it actually encompasses all sales and marketing expenses divided by new customers gained. This means salaries for sales teams, marketing software subscriptions, and promotional events all factor into the total cost. A company cannot accurately measure customer acquisition cost by looking at ad spend alone.
In Practice
A software company spends 50,000 dollars per month on marketing salaries, 10,000 dollars on ads, and 5,000 dollars on promotional events. In that month, they acquire 1,000 new customers. Their customer acquisition cost is 65,000 dollars divided by 1,000 customers, equaling 65 dollars per customer. If these customers generate 100 dollars in profit annually, the company knows it will break even within about 8 months.
Etymology
CUSTOMER (buyer) ACQUISITION (gaining) COST (expense). The COST of ACQUIRING each CUSTOMER.
Common Misspellings
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Related Terms
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See Also
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