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Marketing glossary
What is customer acquisition cost?
Customer acquisition cost tells you, on average, how much the business spends to win each new customer. The calculation becomes useful when its inputs are consistent and when you compare the result with the economics of the customers acquired.
What does customer acquisition cost mean?
The basic formula is:
CAC = total sales and marketing acquisition costs ÷ new customers acquired
If a business spends £24,000 on acquisition during a quarter and wins 12 new customers, its blended CAC is £2,000.
The difficult part is deciding which costs and customers belong together. Acquisition costs may include advertising, events, agency fees, sales salaries, commissions, software and an appropriate share of campaign or content production. State what you include. A calculation based only on advertising spend can be useful for media analysis, but it is not the full cost of acquiring a customer.
A customer acquisition cost example
A managed IT provider spends £9,000 on marketing and £15,000 on sales activity in a quarter. It signs 12 new support customers, producing the £2,000 blended CAC above.
Suppose four came through partner referrals and eight through marketing-supported direct sales. The company can explore costs by route, but attribution may not be clean: a direct customer might have read articles, attended an event and spoken with a partner before enquiring.
The £2,000 figure does not say whether the quarter was successful. A customer expected to contribute £10,000 in gross profit can support a different acquisition cost from one expected to contribute £1,500. The timing of that profit matters as well.
Why does CAC matter?
CAC helps leaders connect sales and marketing investment with commercial outcomes. It can inform budgets, pricing, market selection and the balance between acquisition and retention.
Tracking it by meaningful segment may reveal that one apparently productive channel attracts small customers who leave quickly, while another produces fewer but better-fit relationships. Blended figures are a starting point, not the end of the analysis.
A common CAC mistake
Do not divide this month’s spending by customers who began their buying journeys last year and assume the result describes this month’s activity. Long sales cycles create a timing mismatch. Cohort analysis connects a group of customers with the investment that influenced their acquisition, although it requires better data.
Avoid reporting paid-media CAC and blended CAC under the same label. Write the scope beside the number, including timeframe, customer definition and included costs.
Do not judge CAC alone. Rapid acquisition can still strain cash if the business pays marketing and sales costs now but recovers them slowly.
Related terms and guides
- Customer lifetime value: estimated economic value across a customer relationship.
- CAC payback period: the time gross profit takes to recover acquisition cost.
- Conversion rate: the proportion that advances or becomes a customer.
- Cost per click: advertising cost divided by paid clicks.
Frequently asked questions
What costs should be included in CAC?
Include the sales and marketing costs reasonably associated with acquisition, and document the boundary. Use narrower channel calculations as additional measures rather than quietly calling them total CAC.
What is a good customer acquisition cost?
There is no universal figure. It depends on gross margin, lifetime value, retention, cash flow, growth goals and payback time.
Who wrote this
Steve Ward.
Steve founded Epitomise in 2017 after UK, international and global marketing leadership roles, most recently as Global CMO of the Vitec Group’s Videocom Division. He works with SME and technology businesses on strategy, positioning and the execution that follows — more about Steve.
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