Definition
Customer acquisition cost (CAC) is the average cost of winning one new customer: sales and marketing spend over a period, such as advertising, agency fees, commissions and sales salaries, divided by the number of new customers gained in that period. Blended CAC divides by all new customers, including those who arrived through search or referrals at no direct cost, while paid CAC counts only customers from paid channels. Businesses define it differently, so always ask what is included.
Worked example
Puffin Parcel Boxes is a fictional UK subscription box business. In one quarter it spends £60,000 on advertising and £20,000 on a marketing agency, and gains 2,000 new subscribers.
- Blended CAC is £80,000 divided by 2,000, which is £40.
- Of those subscribers, 400 came from search and referrals. Paid CAC is £80,000 divided by 1,600, which is £50.
Why buyers care
CAC shows whether growth is bought or earned, and whether you could repeat it with your own budget. A rising CAC can mean a channel is saturated, advertising prices have gone up or conversion is slipping.
Watch for marketing cut back before a sale. Lower spend lifts profit in the last 12 months, but new customer numbers fall and the effect shows up after you buy.
Ask for spend and new customers by channel and by month for at least two years. Compare CAC with the gross profit a customer generates over their lifetime, and with how many months it takes to earn back the cost of winning them.