Customer Acquisition Cost (CAC) tells you exactly how much you're spending to land each new customer. It's the total of all your sales and marketing expenses divided by the number of new customers you acquired in that period.
CAC is arguably the most important unit economic metric for startups. If your CAC is higher than your customer lifetime value (LTV), you're losing money on every customer you acquire - a death spiral unless you fix it.
Many founders make the mistake of only counting ad spend in their CAC calculation. But true CAC includes sales team salaries, marketing tools, advertising, events, content creation - everything you spend to acquire customers. This full picture is critical for understanding true profitability.
The best SaaS companies maintain a CAC Payback Period of less than 12 months and an LTV:CAC ratio of 3:1 or better. These benchmarks indicate you're acquiring customers efficiently and profitably.
CAC = (Total Sales & Marketing Expenses) ÷ (Number of New Customers)
CAC Payback Period = CAC ÷ (Monthly Revenue per Customer - Monthly Cost to Serve)
Last quarter, your company spent:
- Marketing: $45,000
- Sales salaries: $75,000
- Sales tools (CRM, etc.): $5,000
- New customers acquired: 50
CAC = ($45,000 + $75,000 + $5,000) ÷ 50 = $2,500 per customer
If your average customer pays $200/month and costs $50/month to serve, your CAC Payback Period is: $2,500 ÷ ($200 - $50) = 16.7 months