Customer Acquisition Cost (CAC) is the total sales and marketing spend required to win one new customer, calculated as the acquisition costs of a period divided by the number of new customers acquired in that period.
CAC is a core measure of 📝Unit Economics. In its simplest form it divides marketing spend, often just paid advertising, by new customers; a fully loaded version adds sales salaries, commissions, agency fees, software, and creative production. Blended CAC averages across every channel, including organic customers who cost nothing to acquire, while paid CAC isolates customers won through paid channels. The same business can look healthy on a blended basis and unhealthy on a paid basis.
CAC only means something against what a customer is worth. Comparing it with lifetime value produces the 📝LTV:CAC ratio, and the time it takes a customer's gross profit to repay it is the payback period. Because there is no standard definition of which costs belong in CAC, reported figures vary widely between companies, and the 📝Magic Cohort shows how selecting only the best customers can make acquisition look cheaper than it is.
A 📝Profitable Revenue Stream requires CAC to be lower than the gross profit a customer generates; in direct-to-consumer commerce, ideally lower than the gross profit on the first purchase. CAC is tracked alongside ad spend in an 📝Integrated Financial Model (IFM) and reviewed weekly in 📝Monday Morning Metrics (MMM).
There isn't a standard definition of what to include in CAC, so entrepreneurs naturally take wide latitude in presenting it in the best light. That's why I put CAC right next to ad spend in every model we build, where the inputs are visible.