What are Customer Acquisition Cost?

Ruben Buijs

Founder & Digital Consultant

Written on Aug 10, 2023

2 minutes

Product Management

Customer Acquisition Cost (CAC) refers to the total amount of money a company spends to acquire a new customer. It is a crucial metric for product managers as it helps them evaluate the effectiveness and efficiency of their marketing and sales efforts. By understanding the CAC, product managers can make informed decisions about their customer acquisition strategies and optimize their resources accordingly.


Let's consider a few examples to better grasp the concept of Customer Acquisition Cost:

  1. Company A spent $10,000 on marketing and sales activities in a month and acquired 100 new customers during that period. Therefore, the CAC for Company A would be $100 ($10,000 / 100).

  2. Company B invested $50,000 in a marketing campaign that led to 500 new customers. In this case, the CAC for Company B would be $100 ($50,000 / 500) as well.

These examples illustrate how to calculate CAC by dividing the total expenses by the number of new customers acquired.


Understanding Customer Acquisition Cost is essential for product managers for several reasons:

  1. Financial Decision Making: CAC helps product managers determine the maximum amount they can spend on customer acquisition without exceeding their budget.

  2. Profitability Analysis: By comparing the CAC with the customer's Lifetime Value (LTV), product managers can assess the profitability of acquiring a particular customer. If the CAC is higher than the LTV, it may indicate an unsustainable business model.

  3. Marketing Optimization: CAC provides insights into the effectiveness of different marketing channels and campaigns. By analyzing CAC across various marketing efforts, product managers can identify the most cost-effective strategies and allocate resources accordingly.

How to Use Customer Acquisition Cost

To effectively use Customer Acquisition Cost in your product management efforts, follow these steps:

  1. Gather Data: Collect accurate and detailed data related to marketing and sales expenses, as well as the number of new customers acquired within a specific period.

  2. Calculate CAC: Divide the total expenses by the number of new customers acquired to calculate the CAC.

  3. Analyze CAC: Compare the CAC with the LTV to determine the profitability of acquiring customers through different channels and campaigns.

  4. Optimize Strategies: Identify the most cost-effective marketing channels and campaigns and allocate resources accordingly. Experiment with different approaches to reduce CAC and maximize customer acquisition efficiency.

Useful Tips

Consider the following tips to make the most out of Customer Acquisition Cost:

  • Continuously track and update your CAC calculations to ensure accuracy and relevance.
  • Regularly analyze the CAC in relation to the customer's Lifetime Value to evaluate the long-term profitability of your customer acquisition efforts.
  • Experiment with different marketing channels and campaigns to identify the most efficient and cost-effective strategies for acquiring customers.
  • Collaborate with marketing and sales teams to align efforts and optimize CAC collectively.
  • Keep an eye on industry benchmarks and compare your CAC against them to gauge your performance.


Customer Acquisition Cost (CAC) is the cost incurred by a company to acquire a new customer.
Customer Acquisition Cost is important because it helps businesses measure and analyze the effectiveness of their marketing and sales efforts.
Customer Acquisition Cost is calculated by dividing the total marketing and sales expenses by the number of new customers acquired within a specific time period.
The components of Customer Acquisition Cost typically include marketing expenses, advertising costs, sales team salaries, and any other costs directly associated with acquiring new customers.
A good Customer Acquisition Cost varies across industries and depends on factors such as the average customer lifetime value and the company's growth stage. Generally, a lower CAC is desirable.
Businesses can reduce Customer Acquisition Cost by optimizing their marketing and sales strategies, improving lead generation and conversion rates, and enhancing customer retention efforts.
Customer Acquisition Cost and Customer Lifetime Value are closely related. To be profitable, the cost of acquiring a customer (CAC) should be lower than the revenue generated from that customer over their lifetime (CLTV).
Some common challenges in calculating Customer Acquisition Cost include accurately attributing marketing expenses to specific customers, accounting for the time value of money, and dealing with multi-channel marketing strategies.
No, Customer Acquisition Cost is an important metric, but it should be evaluated alongside other metrics such as customer retention rate, customer satisfaction, and return on investment (ROI) to get a comprehensive understanding of marketing effectiveness.
No, Customer Acquisition Cost cannot be negative. It represents the expenses incurred to acquire customers and is always a positive value.

Article by

Ruben Buijs

Ruben is the founder of ProductLift. I employ a decade of consulting experience from Ernst & Young to maximize clients' ROI on new Tech developments. I now help companies build better products

Table of contents

  1. Examples
  2. Importance
  3. How to Use Customer Acquisition Cost
  4. Useful Tips
  5. Related Terms

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