Customer acquisition cost formula
CAC is what it cost to win customers in a period divided by the number of new customers won in that period. Public companies that report it state their definition in SEC filings; FIGS, for example, defines CAC as marketing expense attributable to acquiring and retaining customers divided by customers acquired in the same period.[1] Definitions differ, so always say what is in the numerator.
- Fully loaded CAC$400
- Marketing-only cost per customer$240
- Monthly gross profit each$80.00
- Payback5 months
The marketing-only figure answers a narrower question, the marketing cost per customer; the fully loaded figure includes sales effort and is the one to compare with lifetime value.
CAC payback period
CAC payback is the number of months of gross profit it takes to earn back the cost of acquiring a customer. Bill.com, for instance, defines its payback period in its 10-K as the time for cumulative gross profit from a cohort to exceed the sales and marketing spend that acquired it.[2]
| CAC | $50/mo | $100/mo | $250/mo |
|---|---|---|---|
| $200 | 5 | 2.5 | 1 |
| $400 | 10 | 5 | 2 |
| $800 | 20 | 10 | 4 |
| $1,600 | 40 | 20 | 8 |
A payback longer than the average customer lifetime means customers leave before they repay what they cost; check lifetime with the churn rate calculator and value with the customer lifetime value calculator. Keeping existing customers is usually cheaper than acquiring new ones,[3] which is why lifetime value and retention belong next to CAC. Research on customer value makes the same link: a firm’s acquisition cost only makes sense against the margin multiple a retained customer produces.[4]
CAC vs CPA
CPA is ad cost per conversion of any kind; CAC is all acquisition cost per new paying customer. A trial sign-up might cost $40 in ads (CPA) while each customer who eventually pays costs $400 all in (CAC). Use the CPA calculator for campaign tuning and CAC for business decisions.
CAC mistakes
- Counting returning customers as new. Reactivated and repeat buyers inflate the denominator and make CAC look cheap.
- Mismatched periods. Spend in a quarter often wins customers the next quarter. For long sales cycles, lag the denominator.
- Leaving out salaries. Paid-ads-only CAC ignores the people who run them; report both and label which is which.
Frequently asked questions
How do you calculate customer acquisition cost?
(Sales + marketing costs) ÷ new customers in the same period. $50,000 ÷ 125 = $400.
What is the cost to acquire a customer?
Everything spent to win new customers in a period, divided by how many you won: CAC.
How do I calculate CAC payback?
CAC ÷ (monthly revenue per customer × gross margin). $400 ÷ ($100 × 80%) = 5 months.
What should be included in CAC?
Ad spend, marketing tools and content, sales and marketing salaries and commissions, events and any onboarding or trial costs. State your definition.
Sources
- FIGS, Inc. Form 10-K for 2021 (definition of customer acquisition cost)
- Bill.com Holdings Form 10-K for fiscal 2022 (definition of payback period)
- Principles of Marketing, 1.6 Customer Relationship Management (CRM)
- Managing Customers as Investments: The Strategic Value of Customers in the Long Run (Gupta and Lehmann), sample chapters