How to Calculate a Realistic Customer Acquisition Cost
Customer Acquisition Cost (CAC) is total acquisition spend divided by new customers acquired in that period. Most businesses undercount it by tracking only ad spend and ignoring tools, content and a share of team time, which makes campaigns look more profitable than they actually are.
The fully-loaded CAC formula
| Cost input | Include? |
|---|---|
| Ad spend | Yes |
| Marketing tool subscriptions | Yes |
| Content production cost | Yes |
| Share of marketing team salaries | Yes, fully-loaded CAC |
Why CAC alone isn't enough
CAC only means something next to Lifetime Value (LTV). A CAC of $50 is fine if LTV is $300, but risky if LTV is $60. A healthy benchmark is LTV at least 3X CAC; below that, growth is expensive and fragile.
Why most CAC numbers are too low
The simple formula is right: acquisition spend divided by new customers. The problem is what goes into "spend". Many businesses count only ad spend, which leaves out agency and freelancer fees, software, content production, and the share of salaries spent on acquisition. The result is a CAC that looks healthy and a business that is not.
A fully loaded CAC, worked through
| Cost | Monthly |
|---|---|
| Paid media | $12,000 |
| Agency or freelancer fees | $3,000 |
| Marketing software (share for acquisition) | $800 |
| Content and creative | $1,500 |
| Sales and marketing salaries (share on new business) | $6,000 |
| Total acquisition cost | $23,300 |
| New customers | 100 |
| Fully loaded CAC | $233 |
With ad spend alone, CAC would look like $120. The real figure is almost double.
Why CAC only means something next to retention
Bain's research, summarised in Harvard Business Review, found that acquiring a new customer can cost five to 25 times more than keeping one, and that a 5% increase in retention can raise profits by 25% to 95% (Harvard Business Review, 2014). A $233 CAC is fine if customers stay for years and terrible if they leave after one order. Always compare CAC with gross margin per customer over their lifetime, and track payback period: how many months of margin it takes to earn back the CAC.
Separate new and returning customers. Counting repeat buyers as "acquired" makes CAC look far better than it is.
What to do this week
Build the fully loaded version for last quarter. Then split it by channel as best you can. The channel ranking often changes once all costs are in. See performance marketing and our guide to qualified versus raw leads.