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Skip or Ship — Glossary
Customer Acquisition Cost
Customer acquisition cost (CAC) is the total sales and marketing spend required to win one new paying customer, calculated by dividing all acquisition costs in a period by the number of customers acquired in that period.
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Metrics · also known as CAC
Customer acquisition cost (CAC) is the total sales and marketing spend required to win one new paying customer, calculated by dividing all acquisition costs in a period by the number of customers acquired in that period.
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
CAC = (total sales + marketing spend in period) ÷ (new customers acquired in period)Include salaries, tools, agencies and commissions — not just ad spend. Excluding people costs is the most common way CAC gets understated.
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.
Direct answer
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Frequently asked questions
What is a good customer acquisition cost?
There is no universal figure — CAC is only meaningful relative to lifetime value. The common benchmark is an LTV:CAC ratio of at least 3:1, with acquisition cost recovered inside twelve months.
What should be included in CAC?
All sales and marketing costs: advertising, fully loaded salaries for sales and marketing staff, agencies and contractors, software and tooling, content production, and commissions. Omitting salaries is the most frequent error.
Why does CAC increase as a company grows?
The earliest customers come from your own network and the most motivated part of the market, which is cheap to reach. Sustaining growth means moving to progressively colder audiences who need more touches to convert.
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