Definitions
What is CAC and how do I calculate it?
CAC definition and formula: total sales and marketing spend divided by new customers acquired in the same period. Worked example and common mistakes.
- 3 August 2026
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What is CAC and how do I calculate it?
CAC (customer acquisition cost) is total sales and marketing spend over a period, divided by the number of new customers acquired in that same period. Spend $6,000 in a month across ads, tools and a part-time marketer's hours, acquire 30 customers, and CAC is $200. It should be tracked per channel, not just as one company-wide average.
Last updated 3 August 2026
| Input | Value |
|---|---|
| Ad spend | $3,000 |
| Tools and software | $500 |
| Contractor/marketer time | $2,500 |
| Total spend | $6,000 |
| New customers | 30 |
| CAC | $200 |
Do this
The steps, in order.
- Step 1
Set a consistent time period
Use the same month or quarter for both spend and customers acquired. Mismatched periods — this month's spend against last month's signups — distort CAC in either direction.
- Step 2
Include all sales and marketing cost, not just ads
Salaries, contractor fees, tool subscriptions and content production all belong in the numerator. Counting only ad spend understates CAC, sometimes by a large margin.
- Step 3
Calculate CAC per channel separately
A blended company-wide CAC can hide a channel costing $50 a customer next to one costing $500. Break spend and customers down by channel wherever the data allows it.
- Step 4
Compare CAC against customer lifetime value, not in isolation
A CAC of $200 is fine if a customer is worth $2,000 over their lifetime, and unsustainable if they're worth $150. CAC alone, without LTV, doesn't tell you whether a channel is healthy.
- Step 5
Track CAC payback period alongside CAC itself
Divide CAC by average monthly revenue per customer to see how many months it takes to recover the acquisition cost. Under 12 months is commonly treated as healthy for subscription software; longer than that ties up cash for a while.
Worth knowing
The bits people get wrong.
CAC rises naturally as a channel matures — the cheapest, most obvious customers convert first, and later customers usually cost more to reach. A rising CAC over time isn't automatically a problem; it's a normal sign that a channel is maturing, provided LTV is rising or holding steady alongside it.
A frequent mistake is calculating CAC only on paid channels and treating organic or referral customers as free. Organic and referral channels still consume hours — content writing, community answering, asking for referrals — and giving them a $0 cost makes company-wide CAC look artificially low.
Fully loaded CAC (including salaries and overhead) and marketing-only CAC (media spend alone) are both used in practice, but they should never be compared to each other or to an industry benchmark without knowing which one is being quoted, since the gap between them can be several times over.
Questions
Follow-up questions.
What's a good CAC to LTV ratio?
A commonly cited practitioner benchmark for SaaS is an LTV:CAC ratio of 3:1 or higher — a customer worth at least three times what it cost to acquire them. Below roughly 1:1, the business loses money on every customer regardless of volume.
Does CAC include the cost of retaining a customer after they sign up?
No — CAC covers acquisition only, up to the point of first purchase or signup. Costs to retain, support or expand an existing customer are usually tracked separately, often as part of a retention or customer success budget.
Why is my CAC different across channels for the same product?
Different channels reach buyers at different points in their decision, and some (like organic search) take longer to convert but cost less per customer, while others (like paid ads) convert faster at a higher cost per customer. This is expected, not necessarily a sign one channel is bad.
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