Customer acquisition cost
Also called: CAC, cost per acquisition, acquisition cost, blended CAC, paid CAC
Definition
Customer acquisition cost (CAC) is the total sales and marketing cost of winning new customers divided by the number of new customers won in the same period. It tells you what each new customer costs to get.
Customer acquisition cost (CAC) is what you spend to win one new customer. It is the other half of lifetime value: LTV says what a customer is worth, CAC says what they cost.
How it works
The basic formula:
CAC = total acquisition costs / new customers acquired, for the same period.
"Total acquisition costs" should include everything it took: ad spend, tools, contractors, the salaried time of people doing sales and marketing, and, as a16z points out, often-forgotten costs like referral fees, credits and discounts.
Worked example
A SaaS company spends this in one month:
- Paid ads: $4,500
- Content contractor: $1,500
- Marketing tools: $500
- Share of a marketer's salary: $3,500
Total: $10,000. It wins 50 new customers that month.
Blended CAC = $10,000 / 50 = $200.
Now isolate paid. Of the 50 customers, 20 came through paid ads, which cost $4,500 plus $1,500 of the marketer's time spent on ads. Paid CAC = $6,000 / 20 = $300.
a16z makes this distinction in its startup metrics list: blended CAC (all costs over all new customers, including organic) is not wrong, but it hides whether paid campaigns are profitable. Investors usually care more about paid CAC.
Why it matters for marketers
CAC decides which channels you can afford. If a customer's lifetime value is $900 and paid CAC is $300, paid works. If paid CAC creeps to $1,000, it does not, however good the click-through rate looks.
It also tells you where to put effort. Channels with near-zero cash cost, such as SEO, communities and word of mouth, can bring blended CAC down sharply, but only if you count the time they take.
How it plays out on Reddit
Reddit can be a paid channel (Reddit Ads) or an organic one, and the CAC math differs:
- Reddit Ads: straightforward. Ad spend plus management time, divided by customers you can attribute. Attribution is the hard part. See attribution.
- Organic Reddit: the cost is time. If a founder spends 10 hours a month finding threads and writing replies, at an internal rate of $100 an hour, that is $1,000. If those replies bring 8 customers (from a "how did you hear about us" field, since much of it shows up as direct traffic), Reddit CAC is $125.
Organic replies also keep working after you write them. A helpful comment in a thread that ranks on Google keeps sending readers for months, so the cost of a reply written in March is spread over customers who arrive in June. That is why monthly CAC can understate the value of community channels; look at a longer window too. For how organic replies compare with paid placements, see Reddit Ads vs organic.
Common mistakes
- Leaving out salaries and tools. CAC that only counts ad spend is a vanity number.
- Mixing periods. Costs from one quarter divided by customers from another distort everything, especially with long sales cycles.
- Using blended CAC to judge paid channels. Organic customers make paid look cheaper than it is.
Frequently asked questions
What is a good customer acquisition cost?
It depends on what a customer is worth. Compare CAC with lifetime value and with how many months of revenue it takes to earn CAC back.
What is the difference between blended and paid CAC?
Blended CAC divides all acquisition costs by all new customers, including organic ones. Paid CAC divides paid marketing costs by customers acquired through paid channels only.
Should founder time count in CAC?
Yes, if you want an honest comparison between channels. Organic channels look free only when their time cost is ignored.