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Customer Acquisition Cost (CAC) is exactly what it sounds like: The amount of money that a brand spends on acquiring new customers. It is most often used to measure the total cost of converting a lead into a paying customer, and it can be very helpful for organizations that wish to measure their return on investment in acquisition initiatives.
CAC can be calculated by adding the total costs incurred when converting prospects into customers (i.e., through sales, marketing, and advertising) and then dividing that amount by the total number of customers acquired during a given period, such as a month or quarter.
This metric is important because if the actual user acquisition cost exceeds revenue for long enough, organizations risk going out of business. As such, it’s a critical metric and its use has risen dramatically in recent years as more and more organizations use web analytics platforms and data insights to strengthen their decision-making.
Tracking in this way also allows businesses to compare their performance across their campaigns, products, and customer segments. For example, you may find that paid search drives a lower CAC than social media ads. Or, you might discover that enterprise buyers have a higher CAC, but that they deliver longer-term value. This level of granularity is crucial for achieving sustainable growth.
This term refers to the total cost that a brand incurs to acquire a new customer, including marketing and sales expenses, divided by the number of customers acquired during a specific period.
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