Customer Acquisition Cost (CAC)

Definition

Customer Acquisition Cost (CAC) is the total expense a business incurs to acquire a new customer. This includes all marketing, advertising, sales, and operational costs. These costs are typically associated with attracting, nurturing, and converting prospects into paying customers. CAC provides a clear view of the investment required to grow your customer base.

Why It Matters

Knowing your Customer Acquisition Cost (CAC) is key to understanding how efficiently your marketing drives new business. When you compare CAC to Customer Lifetime Value (CLV), it shows whether the money spent to win customers is worth it. Keeping CAC lower than CLV ensures your campaigns are profitable and sets your business up for sustainable growth over time.

Example

A PPC agency in Ireland spends €10,000 on a digital marketing campaign that generates 100 new customers. The CAC is €100 per customer. If the average customer generates €500 in revenue over their lifetime (CLV), the campaign is highly profitable. Tracking CAC allows the company to optimise marketing strategies, focusing on channels that deliver the best cost-to-value ratio.

Additional Insights

CAC varies across industries, channels, and campaigns. Paid advertising often has a higher CAC than organic channels, but it can still be worthwhile if the CLV is strong. Segmenting CAC by acquisition source, campaign type, or customer persona helps businesses identify the most cost-effective strategies. Reducing CAC while maintaining or increasing CLV is a core focus for growth marketing teams, often achieved through targeting optimisation, conversion rate improvements, and better lead nurturing.

Bottom Line

Customer Acquisition Cost is more than just a number. It is a critical measure of marketing efficiency and profitability. By continuously monitoring and optimising CAC, businesses can allocate budgets strategically, improve campaign performance, and ensure sustainable growth while maximising the value of every new customer.