Customer Acquisition Cost (CAC)

What is customer acquisition cost (CAC)?

Customer acquisition cost (CAC) is the total investment required to acquire a new customer, including all marketing, sales, and related operational expenses. It captures the full cost of turning a prospect into a paying subscriber, from advertising spend to sales team salaries, software tools, and onboarding incentives.

Why CAC matters

• Profitability insight: CAC helps determine whether acquisition strategies are sustainable and profitable when compared to customer lifetime value (LTV).
• Budget allocation: Knowing your CAC guides smarter investment decisions in channels and campaigns that deliver the highest ROI.
• Growth efficiency: Tracking CAC over time reveals whether scaling efforts are becoming more cost-effective or more expensive.
  

How to calculate CAC

CAC is calculated by dividing the total acquisition costs over a period by the number of new customers acquired in that same period:

CAC = Total sales + marketing costs / Number of new customers acquired

Inclusions and exclusions

Include: Paid advertising, sales salaries and commissions, marketing software, content production, events, and promotional incentives.

Exclude: Costs tied to serving existing customers, upselling, or cross-selling.

Related metrics

Using CAC in subscription businesses

For subscription models, CAC directly impacts retention strategy. High CAC increases the pressure to retain subscribers long enough to recover acquisition costs and achieve profitability. Platforms like Subsets help teams improve CAC payback periods by pairing acquisition with targeted retention interventions, ensuring new subscribers quickly develop habits and remain engaged beyond the first billing cycle.