What It Is
Customer Acquisition Cost, or CAC, is how much you spent on sales and marketing to land one new customer during a given time period. It tells you whether your marketing investment is making you money or quietly bleeding it.
Formula
CAC = Total Marketing and Sales Spend / New Customers Acquired
Total Marketing and Sales Spend includes everything you put toward winning new business: ad budgets, agency fees, marketing software, and any salaries dedicated to sales or marketing. New Customers Acquired is the count of paying customers gained during the same window.
Why It Matters
If your CAC is higher than what a customer is worth to you over their lifetime, you are losing money on every sale. For a local service business, comparing CAC against Customer Lifetime Value is one of the cleanest ways to tell whether your marketing budget is the right size, too big, or too small.
Common Misconception
Some owners only count ad spend when calculating CAC. Leaving out agency retainers, software costs, and the time you personally spend on marketing inflates the numbers and makes the picture look better than it actually is. A complete CAC includes every cost tied to acquiring customers.
FAQ
What is a good CAC for a local service business?
Good is relative to what a customer is worth to you. A general healthy benchmark is that Customer Lifetime Value should be at least three times CAC. Below that ratio, your business is leaving very little room to operate.
Should I track CAC by channel?
Yes. A blended CAC across all marketing tells you the overall health of your spend, but per-channel CAC tells you which channels are actually pulling their weight and which are dragging the average down.
Is CAC the same as Cost Per Lead?
No. Cost Per Lead is what you pay for each prospect who shows interest. CAC is what you pay for each prospect who actually becomes a paying customer.
Leave a Reply