Customer Acquisition Cost

What Customer Acquisition Cost means in practice

CAC is the price you pay for growth. On its own it means very little — a £900 CAC is excellent for a product with a £6,000 annual contract and fatal for one earning £120 a year. It only becomes meaningful next to customer lifetime value and the time it takes to earn the money back.

Most reported CAC figures are understated because the calculation quietly excludes costs. A defensible CAC includes salaries for everyone in sales and marketing, agency and contractor fees, tooling, content production and commissions — not just advertising spend. Excluding salaries is the single most common way founders convince themselves acquisition is cheaper than it is.

CAC is not static. Early customers are usually the cheapest to win because they come from your own network and the most motivated slice of the market. As you exhaust that pool and move to colder audiences, CAC typically rises — which means planning on your current CAC holding steady as you scale is optimistic by default.

How it is calculated

Worked example

A SaaS company reviewing one quarter of acquisition spend.

• Paid advertising: £18,000.
• Two people in sales and marketing, fully loaded: £30,000.
• Tools, content and contractors: £6,000.
• Total: £54,000. New customers acquired: 60.
• CAC = £54,000 ÷ 60 = £900.

Takeaway: Counting only advertising would have produced a CAC of £300 — a third of the real figure, and enough to make an unsustainable model look healthy.

Common mistakes

• Counting only advertising spend and omitting salaries, which typically understates CAC by two to three times.
• Including organic or word-of-mouth customers in the denominator while excluding the costs that produced them.
• Reading CAC in isolation instead of against LTV and payback period.
• Assuming early CAC will hold as you scale — the cheapest audiences are usually reached first.

Related tool: CAC calculator.

Related terms

• Customer Lifetime Value — Customer lifetime value (LTV) is the total gross profit you expect to earn from a single customer across the whole of their relationship with you, before the cost of acquiring them.
• LTV:CAC Ratio — The LTV:CAC ratio compares the lifetime gross profit of a customer to the cost of acquiring them, showing how many times over each customer repays their acquisition cost. Around 3:1 is the common health benchmark.
• CAC Payback Period — CAC payback period is the number of months it takes for the gross profit from a customer to repay the cost of acquiring them — the point at which that customer stops being a loss.
• Unit Economics — Unit economics are the direct revenues and costs associated with a single unit of your business — usually one customer — showing whether each one is profitable before overheads.

Last reviewed 8 August 2026