Customer Acquisition Cost (CAC) is exactly what it sounds like: The amount of money that a brand spends on acquiring new customers. CAC 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 into customer 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 dividing that amount by the total number of customers acquired in a given period, such as per month or per quarter.
CAC is important because if customer 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.