Customer Acquisition Cost (CAC) is the cost incurred by a company to acquire a new customer. They represent the total costs associated with acquiring a new customer, including marketing, sales and all other costs incurred in the process. CAC is usually expressed as a cost per customer and calculated by dividing the total cost of acquiring a new customer by the number of new customers acquired in a given period.
For example, if a company spends US$100,000 on marketing and sales activities to attract 1,000 new customers, the CAC is US$100 (US$100,000 / 1,000 customers).
The CAC is an important metric for companies because it provides information about the efficiency of their customer acquisition. If the CAC is too high, it may indicate that the company is spending too much on new customer acquisition and may not be able to sustain its growth or achieve a positive return on investment. A low CAC, on the other hand, shows that the company is efficiently acquiring new customers and has a competitive advantage in the market.
When companies know CAC, they can make data-driven decisions to optimise their customer acquisition, reduce costs and improve their return on investment.