Every business wants to grow and expand, but the procedure becomes expensive if you donât know how to keep your acquisition costs under control. Calculating your Customer Acquisition Cost will let you quantify how much you will spend to get new customers.
Keep reading for everything you need to know about CAC, including how to calculate customer acquisition cost, the average customer acquisition cost by industry, and how to reduce your CAC.
What Is Customer Acquisition Cost (CAC)?
Customer Acquisition Cost (CAC) is a financial metric that measures the cost of acquiring a new customer. It considers all the expenses that include marketing, sales and other efforts used to attract new customers. High-quality leads are more likely to convert into customers, thereby reducing the customer acquisition cost.
It is one of the most notable performance metrics used in profitability analysis, often analyzed along with customer lifetime value (LTV) to measure the efficiency of customer acquisition efforts.
CAC Formula And Examples (Standard, Blended vs. Paid)
Standard CAC Formula
Customer Acquisition Cost = Total Sales and Marketing Costs/Number of New Customers Acquired
Quick Example (Plug-And-Play)
Sales & marketing spend $50,000
New Customer: 500
CAC = $50,000 / 500 = $100
Blended vs. Paid CAC
Blended CAC is calculated by dividing the total cost of customer acquisition by the total number of customers acquired. It takes into account the costs associated with acquiring a customer through various marketing and sales channels like email marketing, social media, paid advertising, and more. This includes channels you donât directly pay for.
Paid CAC involves the costs you incur to acquire new customers through paid marketing channels only. This is calculated by dividing the total cost of paid marketing campaigns by the number of new customers acquired in that timeframe.
CAC Payback Period And LTV:CAC (Targets + Math)
CAC Payback Period
A CAC Payback Period is a metric that shows how long a company has to wait to earn back the money it spent to acquire a new customer based on the gross profit that the customer usually generates.
Payback Period=Gross Margin per Customer per Month CAC
LTV:CAC Ratio
The CAC Ratio compares the total value a customer brings to the business over their entire relationship. It measures the long-term profitability and ROI of the customer acquisition efforts.
- A healthy target is usually 3:1.
- Below 1:1 means youâre losing money on every customer.
Both of these metrics assess the sustainability of a business and help make informed decisions about growth investment, marketing strategies and product development.
CAC Benchmarks (Ecommerce, SaaS)
A good CAC depends on the business model and industry. SaaS businesses accept higher CAC at times if the retention is strong. The significant variations across industries highlight the importance of industry-specific strategies rather than one-size-fits-all approaches. Companies regularly evaluate their customer acquisition efficiency against these benchmarks to remain competitive.
This metric is shaped by pricing, onboarding, product quality, support, and customer fit. Some of the most popular strategies to reduce CAC in 2025 are:
- Leverage AI and Automation
- Optimize Campaigns
- Diversify Marketing Channels
- Focus on Retention
- Simplify Onboarding
- Improve Lead Nurturing
The average CAC varies across industries. For example:
- SaaS Industry: $702
- B2B Companies: $536
- eCommerce Businesses: $70
How To Reduce CAC (High-Impact Levers)
It is always a challenge for companies to acquire new leads and customers. Companies use their resources to reach new customers daily. To know the success level of marketing strategies and campaigns, we need to look at customer acquisition costs. Many companies offer valuable products and services to the public. A lot of time goes to conducting market research, product placement, and other strategies made for sales success.
Those strategies add to your customer acquisition costs. Below is a list of simple ways to reduce your customer acquisition costs and continue making sales.
Improve Conversion Rate (More Wins Per Click)
To improve your Lead Conversion Rate and get more âwins per clickâ optimize your website performance, user experience and trust by using techniques like faster loading times, mobile responsiveness, clear CTAs and A/B testing to fine-tune elements as form fields and checkout processes.
Grow Non-Paid Acquisition
Non-paid acquisition or more commonly known as organic user acquisition, focuses on strategies like Search Engine Optimization (SEO), content marketing and social media engagement to organically attract users through worthwhile content and community building.
Make Paid More Efficient
Optimize ad targeting, creative testing, and bidding to stretch every dollar that you have invested. Speed up your invoicing and payment collection by promptly invoicing and offering multiple digital payment options.
Shorten The Sales Cycle (B2B)
The average B2B sales cycle today is approximately 4 months. The longer this cycle will be, the higher the chances that businesses will lose a prospect. By implementing various strategies, you can shorten the sales cycle that impacts your conversion rates and overall sales.
1. Use AI-Driven Sales Enablement Solutions
2. Explore Prospect Objections Proactively
3. Facilitate Hassle-Free Signing Of Contracts On Any Device With Ease
4. Implement Incremental Closes
5. Better Sales and Marketing Collaboration
6. Be Transparent About Pricing Early
The ability to shorten your sales cycle can be the difference between leading the pack or falling behind the competitive edge.
Raise Gross Margin Dollars
Boosting your gross margin isn’t just about padding the bottom line; itâs about fueling your businessâs growth and reinvestment potential by increasing net profit. Given the importance of Gross Profit margin, here are 4 ways to increase it:
- Differentiate your business from your competitors, so you stop competing on price.
- Pricing– This means you need to focus on how much your product and solution are worth for your customer, rather than how much it costs from your supplier.
- Focus on a profitable product mix- simply focusing on selling more of the higher margin products will lift your overall margin. Itâs essential that you know how profitable your product lines or groups are.
- Increase your average order value by focusing on increasing your average order value through upselling or minimum order values can help you dilute your delivery costs, and increase your Gross Profit margin.
CAC vs. CPA (And Related Metrics)
CAC = (Total Marketing Expenses + Total Sales Expenses) / Number of new customers
CPA is a pricing model in which marketers pay ad networks or media sources when a user takes a particular action (such as completing a purchase or registration) inside of an app, after engagement with an ad.
CPA = total expenses for the campaign/number of acquisitions
CAC shows how much you spend to win a single new customer.
Conclusion
By understanding your CAC, you can make better decisions around pricing, scaling your ads, and improving your overall sales efficiency. It gains true meaning when juxtaposed with other metrics like Lifetime Value (LTV) or conversion rates. If a client’s aim is rapid market penetration, a higher CAC might be acceptable initially. Conversely, for a client focused on profitability, optimizing CAC becomes paramount.
FAQ
What Costs Are Included In CAC?
Customer Acquisition Cost (CAC) includes an array of sales and marketing expenses like salaries, commissions, advertising, content creation, marketing software, overhead costs for sales and marketing teams.
Is CAC Calculated On Gross Or Net Revenue?
CAC is calculated by using gross sales and marketing expenses, not revenue. While revenue itself isn’t used to calculate CAC, gross profit is a key component used to determine the CAC Payback Period, or how long it takes to recoup the acquisition cost.
What Is A Good CAC For Ecommerce?
A good Customer Acquisition Cost (CAC) for eCommerce isn’t a fixed number, but rather depends on your business model and industry, with a common benchmark being an LTV:CAC ratio of 3:1 or higher. The average CAC for eCommerce varies widely, falling between $50 and $130.
How Do I Lower CAC Fast?
To lower your Customer Acquisition Cost (CAC) fast you should focus on increasing your conversion rates by optimizing your marketing and sales funnels, improve customer retention and tighten your Ideal Customer Profile (ICP).
Whatâs The Difference Between CAC And CPA?
The main difference is that Cost Per Acquisition (CPA) is a campaign- or channel-specific metric that measures the cost to achieve a desired action (like a signup or free trial), while Customer Acquisition Cost (CAC) is a wider, business-wide metric representing the total cost to acquire a new and paying customer over a given period.
