What is Customer Acquisition Cost (CAC)?
Short Answer
CAC is the fully loaded cost to acquire a customer — including sales, marketing, and onboarding — divided by the number of customers acquired in a period.
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.
Try It Yourself
Related Questions
LTV is the total profit a company expects to generate from a customer relationship over its lifetime — calculated as (ARPU × Contribution Margin) / Mo...
Payback Period is the time (in months) for revenue from a customer to cover the CAC — calculated as CAC / Monthly Contribution Margin.
Gross Margin = (Revenue − Cost of Goods Sold) / Revenue. Contribution Margin = (Revenue − Variable Costs) / Revenue. Both measure profitability at dif...
Further Reading
The Burn Multiple: Why Capital Efficiency Is the New Growth
The burn multiple has replaced growth rate as the metric investors scrutinise most. This guide explains the formula, stage-specific benchmarks, and why every dollar of burn should be creating an intangible asset that compounds in value.
Read more →Want to see these concepts in action?
Take the free intangible asset assessment to see how these concepts apply to your business.