Customer Acquisition Cost — total cost to acquire one paying customer.
Customer Acquisition Cost (CAC) is the total cost of sales and marketing efforts required to acquire one new paying customer. CAC = Total Sales & Marketing Spend / Number of New Customers Acquired. Unlike CPA (which can measure any action), CAC specifically measures the cost to win a paying customer and includes all associated costs: advertising, sales team salaries, marketing tools, and overheads.
CAC is fundamental to business viability. Comparing CAC to Customer Lifetime Value (CLV/LTV) reveals whether your growth is sustainable. The ideal CAC:LTV ratio is 1:3 or better — meaning each customer generates at least 3x what they cost to acquire.
A SaaS company spends $100,000/month on marketing and sales, acquiring 200 new customers. CAC = $500. If customers stay for 24 months at $50/month, LTV = $1,200. LTV:CAC = 2.4:1 — borderline but acceptable.
Improve conversion rates, improve targeting, expand organic/referral channels, improve retention (so cohort-based acquisition costs spread across more months), and reduce sales cycle length.
CPA
Cost Per Acquisition — the average cost to acquire one customer or lead.
Customer Lifetime Value
The total revenue a business can expect from a single customer over the entire relationship.
ROAS
Return On Ad Spend — revenue earned for every dollar spent on advertising.
ROI
Return on Investment — net profit divided by the cost of the investment, expressed as a percentage.