What is Customer Acquisition Cost (CAC)?

Full Explanation

CAC = (Sales + Marketing + Onboarding Costs) / Customers Acquired. If a company spends £500K on sales and marketing in a quarter and acquires 100 customers, CAC is £5K per customer. However, CAC varies significantly by acquisition channel. Self-serve product sales (CAC £100-£500) are cheaper than direct sales (CAC £5K-£15K). The key metric is CAC Payback Period: how long until revenue from a customer covers their CAC. If a customer generates £500 monthly profit and CAC was £5K, payback is 10 months. For SaaS, payback under 12 months is typical; under 6 months is exceptional. CAC scales with sales headcount, so as companies grow, CAC often increases (you have already hired the most efficient salespeople and must hire less experienced ones at higher cost). Understanding CAC by channel and customer segment is critical for unit economics. Many startups blow through capital with high CAC and poor payback, leading to burnout without profitability insights. Investors heavily scrutinise CAC and CAC payback period — they signal unit economics health.

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