Customer Acquisition Cost Definition
The Customer Acquisition Cost KPI measures how much it costs for a company to acquire one customer. It is a normalized KPI to understand the unit economics of how effective a company is at acquiring each of their customers.
CAC is a KPI that has been growing in popularity among internet-based companies and startups as a barometer for the health of their growth.
Pre-Internet, companies had to utilize a spray-and-pray shotgun-style advertising method to acquire customers in the decision-making process. Think of mediums like billboards, newspapers, magazine ads, television and so forth.
Today, web-based companies can use technology to execute highly targeted and personalized campaigns to target their ideal customers and track them meticulously as they progress from prospective leads to loyal customers. In this new ecosystem of tools and technologies, the CAC metric is used by both companies and investors.
Customer Acquisition Cost CAC Formula
CAC = Expenses Related to Acquiring Customers / Number of Customers
Return on Marketing Investment Example
Let’s say we have a company that spends $150,000 on marketing and customer acquisition related expenses to acquire customers for their SaaS business. The efforts resulted in 8,000 customers. The calculation goes:
Customer Acquisition Cost (CAC) = ($150,000 / 8,000)
The marketing team, in this case, was able to acquire each customer at a cost of $18.75.