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Customer Acquisition Cost (CAC) Definition
Customer Acquisition Cost (CAC) measures the total expenses associated with gaining a new customer, including advertising, sales, and operational costs. It's a key profitability metric used to evaluate marketing efficiency and customer growth sustainability.
How CAC Works
- Total sales and marketing expenses are calculated.
- New customers acquired during the period are counted.
- CAC = Total expenses ÷ Number of new customers.
- Lower CAC indicates more efficient acquisition strategies.
Example of CAC
A company spends $50,000 on marketing and gains 500 customers, resulting in a $100 CAC.
Why CAC Matters in Advertising
- Helps assess marketing efficiency and ROI
- Informs budgeting and growth planning decisions
- Lowering CAC improves profitability and scalability
- Essential for evaluating acquisition-focused campaigns
