What is CAC (Customer Acquisition Cost)?
The total cost of acquiring a new customer, including marketing and sales expenses divided by the number of new customers.
Detailed Explanation
Customer Acquisition Cost (CAC) is a key business metric calculated by dividing total sales and marketing expenses by the number of new customers acquired in a given period. It includes all costs: advertising spend, salaries, tools, content creation, and events. A healthy business maintains a CAC that is significantly lower than the Lifetime Value (LTV) of its customers — the LTV:CAC ratio is a critical indicator of unit economics. AI agents can reduce CAC by automating marketing tasks, optimizing ad spend, improving conversion rates, and identifying the most efficient acquisition channels through continuous experimentation.
Related Terms
Frequently Asked Questions
What is a good CAC?
A good CAC depends on your business model. SaaS companies typically aim for LTV:CAC ratios of 3:1 or higher. E-commerce targets vary by margin but usually need payback within 3-6 months.
How can I reduce CAC?
Improve conversion rates, focus on high-performing channels, leverage organic/viral growth, optimize targeting, automate repetitive marketing tasks, and increase customer referrals.
Does CAC include existing customer marketing?
Strictly, CAC only includes costs for new customers. Retention and expansion marketing costs are typically tracked separately, though some blended CAC calculations include all marketing spend.