Customer Acquisition Cost: the metric that links marketing and sales

What does CAC mean?

CAC stands for customer acquisition cost, also written customer acquisition costs. The metric is expressed as an amount per new customer.

How is the CAC calculated?

The Customer Acquisition Cost (CAC) is calculated by dividing the total marketing and sales costs by the number of customers acquired in a specific period. The formula is:

CAC = Marketing & Sales Costs / Number of New Customers Acquired

Use the same period for costs and new customers. In practice, the CAC calculation is often more complex, as many influencing factors must be taken into account. Companies need to consider the different cost structures of the various channels, the Customer Lifetime Value of new customers, as well as time delays. By using various analysis methods and attribution techniques, companies can gain a significantly more accurate picture of the actual acquisition costs.

What belongs in the costs

• media budget, for example for Google Ads, social media and sponsorship,
• salaries and commissions in marketing and sales, insofar as they serve acquisition,
• agencies, service providers and creative costs,
• tools and software, such as CRM and tracking,
• discounts granted only for the first purchase, if you treat them as acquisition costs.

Costs of serving existing customers do not belong here. Set the period and the scope once and stick to them, otherwise the values cannot be compared.

The importance of CAC in marketing

In marketing, CAC is a key metric for assessing the efficiency and profitability of advertising. CAC indicates how much a company must invest in marketing activities to acquire a new customer. Campaign optimisation, the choice of target audiences and cost-effective channels all influence it. Marketing teams use CAC to measure how well their strategies work and to allocate resources effectively. A low CAC with a consistently high conversion rate indicates successful marketing efforts. Furthermore, CAC helps marketing teams plan the budget for future campaigns and secure profitability in the long term.

The importance of CAC in sales

In sales, CAC serves as a key indicator to measure the success of acquisition processes and the efficiency of the sales team. Sales departments analyse CAC to understand which acquisition strategies are the most profitable. This involves the direct costs and the time and resources invested in the sales process. A low CAC may indicate that the sales process is well-structured and that the resources used are being employed efficiently. At the same time, sales teams must always consider CAC in relation to Customer Lifetime Value (CLV) to ensure that acquisition costs are justified in the long term. Close collaboration with marketing helps to develop a coherent strategy for customer acquisition.

CAC across marketing and sales

While marketing uses the CAC for optimising its campaigns, sales analyses the CAC to make its processes and strategies more efficient. An integrated view of this metric allows companies to optimise the entire customer journey, from the initial contact to the completion of the sale. The close interlinking between marketing and sales is therefore essential to keep the CAC low while increasing the value of acquired customers.

Calculating CAC: an example

Here is a simple example of how a CAC calculation for a customer acquisition strategy might look:

Determining the Total Costs for Marketing and Sales: First, the total costs incurred for customer acquisition must be determined. These costs include expenses for advertising, salaries of the sales team, costs for tools and software, as well as all other direct and indirect expenses that contribute to acquiring new customers.

Example: Suppose a company invests €15,000 in marketing and sales for a campaign. This amount consists of:

1. Online advertising (Google Ads, Social Media): €8,000
2. Sales team salaries: €5,000
3. Marketing tools and other expenses: €2,000

Calculating the number of new customers acquired: Next, the number of customers acquired through the campaign is determined. This figure can be established through tracking tools, conversion data, or by attributing sales to specific marketing channels.

Example: The campaign brings in 300 new customers.

Calculation of the CAC: The CAC is calculated by dividing the total costs by the number of new customers acquired:

CAC = Marketing & sales costs / Number of new customers acquired

Let’s insert the values from the example:

CAC = €15,000 / 300 customers = €50 per customer

Interpretation: A CAC of €50 means that the company must, on average, invest €50 to acquire a new customer. This metric helps the company assess the efficiency of its acquisition strategies. A lower CAC is generally desirable, provided that the customer lifetime value (CLV) of the customers significantly exceeds the acquisition costs.

Channel CAC and blended CAC

Blended CAC divides all acquisition costs by all new customers, channel CAC calculates per channel. Blended CAC shows the overall picture, channel CAC shows where the budget works. The worked example splits the €15,000 from the example above across two channels.

Channel CAC depends on the attribution model. Under last-click attribution, channels that merely initiate many purchases often look more expensive than they are.

CAC calculator

Here you can easily calculate the Customer Acquisition Cost (CAC). To do this, enter the total marketing and sales costs under ‘Costs’ and the total number of newly acquired customers under ‘New customers’. The CAC will be automatically determined from this.

CAC and CLV: when does acquisition pay off?

CAC alone does not tell you whether a new customer pays off. For that, compare it with the customer lifetime value (CLV) based on profit:

CLV : CAC = CLV based on profit / CAC

Worked example: €240 CLV / €50 CAC gives 4.8. For software subscriptions, a widely used rule of thumb names a ratio above 3. That is not a general benchmark for all industries. You can also check when the costs have been earned back:

Payback in months = CAC / Monthly contribution margin

Worked example: €50 CAC / €10 monthly contribution margin gives 5 months.

CAC, CPA and CPL: the difference

Advantages and limitations of CAC

CAC (Customer Acquisition Cost) is an important metric in marketing and sales, but it has both advantages and limitations. Here is an overview:

Advantages of the CAC:

• Measuring Cost Efficiency: The CAC enables companies to assess the efficiency of their marketing and sales strategies by highlighting the costs associated with acquiring a new customer.
• Budget planning and optimisation: Through the CAC, companies can plan their marketing budgets more strategically and allocate resources to the most effective channels.
• Profitability Analysis: The CAC helps to calculate the return on investment (ROI) of acquisition measures and ensure long-term profitability.
• Comparison of Sales Channels: Companies can use the CAC to compare the efficiency of various channels (e.g. online advertising, events, social media) and select the best channels for customer acquisition.
• Strategic Decision-Making Basis: The CAC provides a foundation for decisions regarding pricing, customer segmentation, and future marketing strategies.
• Assess scalability: Companies can analyse CAC to determine whether their customer acquisition can be scaled in a cost-effective manner.

Limits of the CAC:

• No consideration of Customer Lifetime Value (CLV): The CAC alone does not provide a complete picture, as it does not take into account how much a customer is worth in the long term. A high CAC can still be profitable in certain cases if the CLV is high enough.
• Complex Attribution: The calculation of CAC is complicated by the allocation of costs across various touchpoints. Multi-touch attribution can be challenging and may lead to inaccurate CAC values.
• Short-term Perspective: The CAC often focuses on short-term costs and successes, without considering long-term customer loyalty and branding.
• Variable market conditions: The CAC can fluctuate significantly, depending on seasonal effects, market trends, or competition. As a result, the CAC is not a static value and must be continuously monitored.
• Not all costs are captured: Indirect costs such as brand building or long-term investments in infrastructure often do not directly factor into the calculation of CAC, which can lead to a distortion.
• Different Customer Quality: CAC does not take into account the quality of acquired customers. Inexpensively acquired customers may exhibit lower loyalty or be less profitable.
• Varying acquisition costs depending on customer segment: CAC can vary significantly depending on the target audience. A blanket calculation can lead to wrong conclusions if different customer segments are not considered separately.

Reducing and optimising CAC

Each marketing discipline has its own levers for reducing the CAC:

1. Content Marketing: High-quality, relevant content suited to the needs of the target audience increases organic engagement and reduces the need for costly advertising. Reusing existing content in various formats (blog, video, infographics) saves resources and gets more from a single piece of content.
2. Social Media Marketing: By utilising the targeting options more precisely on platforms such as Facebook, Instagram, X (formerly Twitter), or LinkedIn, ads can be directed at specific users. More accurate targeting of the right audiences increases the conversion rate and reduces unnecessary advertising expenses. With retargeting, users who have already interacted with the brand can be approached again. This can boost the conversion rate and lower the CAC, as these users are more likely to convert.
3. SEO (Search Engine Optimisation): Improved site structure, faster loading times, and user-friendly design lead to higher rankings and thus more organic traffic. High-quality backlinks can improve organic reach, which in the long term reduces acquisition costs.
4. SEA (Search Engine Advertising): By optimising bidding strategies on platforms such as Google Ads, advertising costs can be reduced and conversion rates increased. Efficient landing pages with clear user guidance and fast loading times enhance the conversion rate and optimise the spend per conversion.
5. Email Marketing: By segmenting the email list according to interests, behaviour, or the stage of the customer journey, suitable messages can be sent that lead to higher conversions. Through consistent and valuable communication with potential customers, they can be guided along the customer journey, which increases conversion opportunities.
6. Influencer Marketing: To target specific audiences more efficiently, collaboration with micro-influencers can be beneficial. They often have an engaged community and offer a better cost-performance ratio than larger influencers. Performance-based compensation based on conversions or leads can reduce the CAC compared with flat fees.
7. Affiliate Marketing: Focusing on a few high-quality affiliates who reach exactly the right audience reduces wasted reach.