Customer Acquisition Cost (CAC)
In one sentence
The average cost to acquire a new customer, calculated by dividing total sales and marketing spend over a given period by the number of new customers acquired.
When calculating CAC, factor in ad spend, content production costs, staff salaries, and software tools. Counting only ad spend underestimates your true costs.
Evaluate CAC alongside Customer Lifetime Value: the business model only works if the revenue generated by a customer exceeds the cost to acquire them.
Example
If monthly sales and marketing spend is 100,000 RMB and yields 20 new customers, the customer acquisition cost is 5,000 RMB.
Related terms
- Customer Lifetime Value (LTV)
- The total revenue or profit a brand expects to generate from a customer throughout their business relationship.
- Return on Investment (ROI)
- The ratio of gain generated by an investment relative to its cost, used to evaluate whether an investment is worthwhile.
- Conversion Rate
- The percentage of total users who complete a target action, such as the proportion of visitors who leave contact details or inquiries that close into deals.
