What is Customer Acquisition Cost (CAC)?
Nexa Consultancy | Startup & Finance Glossary
Customer Acquisition Cost (CAC) is the total cost of sales and marketing efforts required to acquire a new customer. It is a crucial metric for evaluating the efficiency of a company's go-to-market strategy.
For Startups: Startups need to carefully track and optimize their CAC to ensure their business model is sustainable. A high CAC can quickly burn through cash reserves, so it is essential to find scalable and cost-effective acquisition channels. You can calculate yours with our LTV to CAC calculator.
For SaaS: In SaaS, CAC is typically compared with the Customer Lifetime Value (LTV) to determine the long-term profitability of acquiring a customer. A healthy LTV:CAC ratio (often cited as 3:1 or higher) is a key indicator of a viable SaaS business.
Calculation: CAC = Total Sales and Marketing Costs / Number of New Customers Acquired. For example, if a company spends ₹5 Lakhs on sales and marketing in a quarter and acquires 500 new customers, its CAC is ₹1,000.