CAC: Customer Acquisition Cost

CAC (Customer Acquisition Cost) – the cost of acquiring one new customer, including marketing and other related expenses.

Why CAC is needed 

This metric is crucial for evaluating the effectiveness of marketing campaigns. Knowing your CAC allows you to:

• Determine the profitability of investments in customer acquisition;
• Adjust strategies to increase profits;
• Optimize budget allocation. This helps identify key acquisition channels that deliver maximum results with minimal costs.

How CAC differs from CPA 

While both metrics are related to cost measurement, they cover different areas. CAC includes all expenses related to acquiring a new customer:

• Costs for marketers, targeters, designers, and other marketing specialists involved in the process;
• Advertising expenses;
• Costs for sales managers;
• Other related expenses. It includes both fixed and variable costs.

CPA (Cost Per Action) measures the cost of specific actions:

• Clicks;
• Registrations;
• Purchases. If a customer subscribes to an email newsletter or registers in an online store’s personal account after seeing an ad but makes no purchase, the cost of each of their actions is measured by CPA. If the customer purchases goods or services, it is measured by CAC.

Why calculate Customer Acquisition Cost 

The cheaper it is for a business to acquire each new customer, the more profitable and sustainable it becomes. Calculating CAC allows you to:

• Reduce advertising costs while increasing its effectiveness;
• Allocate the main budget to the most profitable channels;
• Evaluate the long-term profitability of a customer;
• Make informed decisions about scaling the business and investing in marketing. This also enhances the company’s competitiveness in the market and reduces financial risks.

How to Calculate CAC

There are two main methods to calculate Customer Acquisition Cost (CAC). The simplest method is the ratio of a specific advertising spend to the number of customers acquired. For example:

• $20 spent on targeted ads;
• 40 new users placed orders;
• Advertising cost / Number of customers = 20/40 = $0.50;
• Therefore, the cost of acquiring one customer is $0.50.

However, this method doesn’t account for all expenses and can be quite inaccurate. A better approach is to use an extended formula that includes the following costs:

• Direct advertising expenses;
• Salaries of marketing specialists;
• Costs for third-party services and software: analytics, task automation;
• Salaries of other employees involved in the process;
• Overhead costs.

Divide the total by the number of customers acquired over a given period to assess the company’s actual expenses and set achievable goals.

Important! Consider the specifics of each advertising tool. Some channels deliver quick results, while others are long-term investments that pay off over time.

What is a good CAC?

There is no specific number, as each industry is unique. It’s better to focus on the LTV (Lifetime Value) to CAC ratio. The minimum acceptable LTV/CAC ratio is 3, meaning a customer should generate three times more profit than the cost to acquire them. If the ratio is lower, the advertising strategy needs to be reviewed.

How to reduce CAC

To lower costs, consider these strategies:

• Use analytics to identify effective traffic sources;
• Focus on high-yield channels;
• Optimize landing pages and sales funnels;
• Improve content to boost conversion rates;
• Target ads to a more specific segment;
• Utilize personalized offers;
• Invest in SEO and content marketing to increase organic traffic;
• Automate processes to reduce time spent on routine tasks.

These strategies will help reduce CAC and enhance the effectiveness of marketing efforts for more efficient budget allocation.