How to Calculate Customer Acquisition Cost (Formula & CAC Examples)

What Is Customer Acquisition Cost?

Customer acquisition cost (CAC) is clearly one of the most important metrics in marketing. CAC was the second metric we included in our 7 key metrics for startups blog and we’ve gone into detail about how to define customer acquisition cost before, too.

Essentially, customer acquisition cost is the cost to a business to acquire each new customer – including everything from advertising expenses to sales salaries and bonuses. 

How Is Customer Acquisition Cost Calculated?

The CAC is a calculation of your overall marketing and sales cost divided by the volume of new customers acquired over a defined period of time. 

Customer Acquisition Cost = Total cost of marketing & sales / Number of new customers 

(Within a given period of time)

That last point – period of time – is an important one. Because if your average sales cycle is 3 months, as it is in some B2B SaaS environments, if you calculate CAC after 2 months of a campaign it’ll look abysmal. You need to factor in how long it takes for a customer to complete a purchase when determining the time period, as well as seasonality if relevant. 

Let’s take a look at how that works in practice. Here’s a stripped-back example of how the total cost of marketing and sales might look for a SaaS startup over a three month period:

Cost	Amount
Marketing & sales team salaries	£30,000
Ad spend	£6,000
50% first month discount	£1,000
Website maintenance	£1,500
TOTAL COST	£38,500

And let’s say they acquire 100 new customers during this month. 

We can calculate their CAC as follows:

CAC = £38,500 / 50

CAC = £385

You need to ensure you include all costs associated with marketing and sales – not just media spend. Media-spend based CAC can be helpful when evaluating narrow areas, such as which type of ad placement worked best in your Instagram campaigns, but the full business metric should include all other costs. Here’s what we mean: 

What Should You Include Within Your Customer Acquisition Cost?

CAC can include a wide range of expenses, from advertising and marketing costs to the cost of sales commissions and other incentives. To calculate your CAC accurately, make sure you’re building in the following costs where they apply:

Media Spend Acquisition Costs

One common example of CAC is advertising expenses. This can include costs associated with traditional advertising methods, such as television and radio ads, as well as digital advertising methods, such as Google AdWords or Meta ads. The cost of creating and distributing advertising materials, such as brochures or flyers, can also be included in CAC.

Salary, Bonus & Incentive Acquisition Costs

Another example of CAC is the cost of sales and marketing salaries and commissions. These costs can include the salaries of sales and marketing employees, as well as any commissions or bonuses paid to them for acquiring new customers. In addition, the cost of any training or development programs provided to sales and marketing employees can also be included in CAC.

The cost of any incentives or bonuses offered to acquire a new customer can also be considered as part of CAC. For example, a company may offer a discount or free trial to new customers as a way of encouraging them to try the company’s products or services. These costs can add up quickly, and it’s important for businesses to carefully consider the potential return on investment (ROI) of any incentives or bonuses they offer.

Technology & Assets Acquisition Costs

Another example of CAC is the cost of creating and maintaining a website or other online presence. This can include the cost of website design and development, as well as the cost of hosting and maintaining the site. 

Producing the creative needed for advertising campaigns is also part of CAC. Making videos, or image ads, or paying copywriters to craft messaging – all of this has associated costs, and contributes to CAC. 

Trade show expenses can also be considered as CAC. This can include the cost of renting a booth, travel expenses and accommodation for employees, and the cost of creating and distributing promotional materials. These expenses can be significant, and it’s important for businesses to carefully consider the potential ROI of participating in trade shows before committing to them.

If your marketing model involves direct outreach, lead generation costs can also be considered as part of CAC. Typically, in the past, this would include the cost of purchasing or renting mailing lists (less common now since GDPR), as well as the cost of any lead generation software or services. Additionally, the cost of creating and distributing lead magnets, such as e-books or webinars, can also be included in CAC.

Finally, the cost of creating and distributing promotional materials can also be considered as part of CAC. This can include the cost of creating and printing brochures, flyers, and other marketing materials, as well as the cost of shipping and handling these materials.

Inventory Upkeep & Storage Costs 

If you have a product business, this is the cost of storing, handling, processing and transporting your goods. And even if you have a SaaS business, you aren’t exempt from costs in this category – instead, your spend will focus on updating and maintaining your product to keep it relevant and useful for your customers (and prospective customers).

What Do Startups Get Wrong When Calculating CAC? 

What do startups get wrong when calculating CAC? And how much faith should they put in their calculations? We asked Growth Division’s co-founder, Tom Dewhurst, who has overseen the growth journey of multiple startups:

“The main error I see in startups when calculating CAC is the oversight of human resources in the calculations. As your headcount grows, so will your CAC and it’s easy to get carried away with growth and lose track of CAC”, he said. 

“The Growth Division model clearly outlines the service fees by channel, which makes it easier to calculate CAC at the channel level when combined with any variable ad spend or design costs. This being said, we take channel CAC with a pinch of salt, as a good marketing strategy will have multiple touchpoints before the customer converts. My recommendation is to keep track of CAC at a management level, keeping it simple by dividing your sales and marketing line items from the P&L by the number of new customers on a monthly basis.” 

And here’s a bonus top tip from Tom if you’re seeking investment for your business: 

“To ‘hack’ your CAC figures for investors, consider investing upfront in marketing assets that have a marginal scalability of CAC. For example, if you invest in a really good website, some amazing videos and fantastic written content, you will see your marginal CAC fall month to month as these assets acquire customers at scale.”

Average Customer Acquisition Costs 

Acquisition costs can vary massively from category to category, and even business to business. It depends on the sector, product, positioning, competition and so much more  – so always take benchmarks with a pinch of salt, and focus on your own data above everything else. 

But to give you a rough idea, FirstPageSage has used their own data to find the average CAC by industry. On the B2C side, they found this ranged from $66 to $591.50, and on the B2B side it was a little higher, ranging from $341 to $1,245. Shopify has also honed in on CAC for ecommerce businesses with under 4 employees, finding this typically ranges from $21 to $377. 

We’ve got a whole post dedicated to typical/average CAC by industry, and what business characteristics are likely to lead to a higher or lower CAC, so be sure to check that out for help with benchmarking.

Why Is Customer Acquisition Cost Important?

Essentially you’re CAC, especially in how it relates to your Lifetime Value (LTV) determines the viability of your business and the desire for it in the market. High CAC, compared to LTV, means it’ll be difficult to be profitable and survive. High CAC compared to your competition indicates your proposition, messaging, creative or customer journey is not good enough to compete. When one marketing campaign has a much higher CAC than another, that tells you that decisions you made in that campaign (creative, media spend, timing or targeting) were not as good as the other.

Overall, as growth marketing experts we strongly agree that CAC is absolutely a key metric for a business to measure and is essential to the overall understanding of your marketing efforts. Understanding and managing CAC is an important aspect of business strategy and growth, as it can help companies to identify areas where they can improve their efficiency and reduce costs. By tracking CAC as a KPI, you can ensure the right areas of the business are aware they need to manage it, reduce it where possible.

FAQs

What are some items you should exclude from CAC?

While some costs should quite clearly form part of CAC, others can be a little blurrier. Things like a new logo, general PR, and other awareness-focused marketing… there’s a debate to be had there, with many saying these costs should not contribute to your CAC during that time period (as they’re not directly focused on and related to acquisition). Ultimately, as long as you’re clear and consistent on what you do and don’t include in your CAC, how you handle these edge cases is up to you. 

Should you include all salaries in your CAC?

No. Ideally, your CAC should only include salaries of individuals who focus on acquiring new customers – so typically anyone working in marketing or sales. If you’re a very small business or startup where everyone is wearing multiple hats, this can get tricky; try estimating what proportion of their time each employee spends on marketing and sales objectives, and include a percentage of their salary within your calculation accordingly.

How should I consider CAC in relation to LTV?

A healthy, profitable business has a high customer LTV (Lifetime Value) and relatively low CAC – although they don’t often start out this way. For founders, the LTV/CAC ratio is one of the most important metrics to track within their business.

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