Definition
Customer Acquisition Cost (CAC)
CAC is the average cost a company incurs to acquire one new customer, including marketing and sales spend.
CAC = total sales and marketing spend over a period divided by the number of new customers acquired in that period. It tells investors how efficiently a startup is buying growth. A rising CAC can signal saturation or weakening marketing efficiency.
CAC is most meaningful alongside the lifetime value (LTV) of a customer: the LTV/CAC ratio shows whether each customer is worth more than they cost to acquire. A healthy ratio (often cited as 3:1 or better) is a sign of sound unit economics.
Related terms
- Lifetime Value (LTV)LTV is the total profit a company expects to earn from a customer over the entire duration of the relationship.
- LTV/CAC RatioThe LTV/CAC ratio compares the lifetime value of a customer to the cost of acquiring them, gauging the efficiency of growth spending.
- Unit EconomicsUnit economics is the analysis of the revenue and costs associated with a single unit — typically one customer or one transaction.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.