Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is the cost to acquire a new customer. It is the total of all expenses, whether in Sales and Marketing allocated towards acquiring a new customer. A customer is defined as a contracted, paying customer. Expenses should include the fully loaded expense for personnel, as well as non-personnel expenses associated with acquiring a new customer.

What it is: Customer acquisition cost represents the total cost incurred by a company to acquire a new customer, including marketing and sales expenses, advertising costs, salaries, and other resources invested in attracting and converting leads.

Why it is important: CAC is a crucial metric for evaluating the effectiveness and efficiency of customer acquisition strategies, allowing startups to assess the financial viability of acquiring new customers.

How to use it in startups: Startups calculate CAC to determine the cost-effectiveness of their marketing and sales efforts, compare it against customer lifetime value, and make informed decisions about resource allocation and customer acquisition channels. By optimizing CAC, startups can improve their customer acquisition strategies and drive sustainable growth.

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