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Whether you’re part of an enterprise SaaS company or you run a small business, getting a new customer is always exciting. As a customer experience professional, welcoming a new customer and helping them start to see value in their purchase is one of the best parts of my job.
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But when was the last time you measured how much it costs your company to actually acquire that new customer? Knowing your customer acquisition cost (CAC) is key to determining whether the money you’re spending to acquire customers is delivering a strong return on investment.
In this guide, I’ll explain how to calculate your CAC and share some strategies and tips to help you get the most bang for your (marketing) buck.
What is customer acquisition cost (CAC)?
CAC means customer acquisition cost. It measures the total cost that a business spends to acquire a new customer. This metric includes all sales and marketing expenses, such as the cost of content creation, social media campaigns, ad spend, salaries and commissions, as well as software tools used. The CAC is calculated by dividing the total sales and marketing expenses by the number of new customers acquired within a specific time period.
Why is CAC important?
My time working in customer success has taught me the importance of ROI. Customers are hyper-focused on obtaining ROI from your offering, and as a business, we should be hyper-focused on tracking ROI from all of our efforts.
Measuring CAC allows a business to assess the ROI of its marketing efforts and determine whether the money spent acquiring new customers is worth the investment.
If I’m spending $500 to acquire customers that only spend $400 on average during our business relationship, I’m actually losing money on my efforts.
Measuring CAC allows me to understand the efficiency of my marketing efforts and make informed decisions. Companies can understand if their acquisition cost is too high and from there, address inefficiencies and lean into the efforts that will create long-term growth and stability.
When Marcelo Salup of Performist was asked about his worst CAC mistakes while running his digital marketing agency, he said, “The most expensive ones I’ve ever made are spending too much time in trying to acquire a customer, just because I like their business, or the person, without stopping to think whether the ‘juice is worth the squeeze.”’
I can relate, and I’m sure you can, too. We all want to nab that big company logo, but as Salup alludes to, measuring your CAC can help you determine if you’re pouring money into efforts that will pay dividends.
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How Businesses Avoid Customer Acquisition Traps
Based on insights from industry experts, I now know that high acquisition costs typically result from poor audience targeting and weak data. More importantly, there are a few key ways experts lower their acquisition costs.
1. Research your audience thoroughly.
You should have a really clear understanding of your ideal customer profile and use it as the foundation of any marketing efforts. If you’re targeting the wrong audience or you’re engaging with your audience in a way that isn’t relevant to them, you’re wasting your time and money.
Dive even deeper into your audience by conducting research through methods like interviews and focus groups. This can provide your company with relevant information and surface surprising insights about your target audience.
I’ve also seen companies have great success with using qualitative approaches like surveys, especially if your buyer personas are hard to pin down for a face-to-face user interview.
Peter Kim, president and chief creative officer of MKR, a creative marketing agency, said that they choose acquisition channels by “conducting the proper research to understand where the target audience is and how they’re engaging with content.”
Likewise, Lisa Richards of The Candida Diet shared that their biggest mistake was spending a fortune on a celebrity endorsement that didn’t connect with their core demographic. She said the experience taught them to “do deep audience research before a large-scale campaign.”
2. Test without end.
Testing helps you find the most cost-effective way to get the highest return on investment from your customer acquisition effort — even when you’re already profitable.
It also helps you decide your best mix of automation and high-touch approaches. As Peter Kim of MKR puts it, “Market research and creative testing also help us reveal audience preferences and develop more accurate customer journeys.”
Elliott Brown from Cache Financials, an SEC-registered investment advisory, corroborates Kim’s position: “Every dollar you spend should be testing a hypothesis.”
Lina Lugova, the CMO of Epom, an adtech company, shares these thoughts as well. She believes there’s “no better strategy for optimizing customer acquisition costs than never-ending tests.” So, her company aims to conduct 10 tests per month with various customer acquisition channels.
I like how Elliott Brown puts it: “When you’re getting started in a competitive space, you can’t just say ‘let’s run some Google ads’ and hope for the best. Instead, you should literally run through a list of potential marketing channels [...] and identify where you have the highest likelihood of success.”
You could start your initial customer acquisition efforts on channels like targeted social media ads, getting referrals from current customers, or even word-of-mouth marketing campaigns.
Then as your company scales, you can start to explore avenues like SEO, creating an inbound marketing motion, and even running larger scale paid media.
Pro tip: No matter where you’re at in the journey, make sure your website has an easy way for interested customers to get in touch with you. You never want to miss the chance to capture a lead when they’re at their point of interest! Chatbots are great for this.
Let’s explore some real-world CAC use cases.
CAC Meaning Across Marketing, Sales, and Customer Success
Identifying all budget items in your organization can be tricky, because it’s not just marketing that’s contributing to customer acquisition. I thought I’d share some insight into what CAC means across departments like marketing, sales, and customer success to help address this.
What does CAC mean in marketing?
When calculating CAC in marketing, you’ll need to go “wide” instead of narrow in your initial inventory. You should consider all expenses, including hidden ones like software, content, agency, training, and overhead costs. If you track all of your inputs, it helps you uncover the actual acquisition cost per customer, ensuring more accurate budgeting and better strategy adjustments.
My rule of thumb is that if your list of expenses feels complete — look again, just to be safe. You’ll need to look beyond the obvious expenses to really get the full picture.
From there, consider prioritizing marketing efforts that are ongoing and require minimal maintenance. For example, your inbound marketing strategy could include prioritizing blog content that attracts high-quality leads organically.
What does CAC mean in sales?
I’ve also found that sales teams that consistently prospect and nurture a solid pipeline don’t need to hire more reps.
Your CAC in sales will depend on your sales pipeline — including the quality and quantity of leads, in addition to how many deals each of your reps are closing. The more efficient your sales team is at closing deals, the more quickly your business grows.
Pro tip: Find ways to automate the qualification of inbound leads so that your team can use their hours having more strategic conversations with leads, versus spending time with a lead trying to qualify them.
What does CAC mean in customer success?
In my experience, customer success teams can be the great key to lowering CAC. Your CSMs are actively trying to create happy customers, and happy customers are a great source for positive reviews and referrals.
Word-of-mouth marketing like referrals actually lowers your CAC, improves spending efficiency, and increases revenue. Data shows that customers acquired through referrals cost less to acquire, stay longer, and have a higher customer lifetime value.
Because of this, I strongly suggest creating a process to help your CSMs identify happy customers, and move them into the loyalty and advocacy stages of your customer journey funnel. Don’t have CSMs? Leverage your support reps instead.
My company’s customer advocacy team ran a SPIFF for CSMs to identify customers who would be willing to be references. We created a leaderboard, encouraged friendly competition and netted 55 confirmed referenceable customers in just one quarter!
With an initiative like this, you’d need to calculate the money set aside for the SPIFF and potentially even a portion of the CSM’s salary dedicated to customer outreach. Even with those incurred costs, chances are those referrals will pay dividends in your broader marketing strategy.
Now, let's talk about how to calculate your current CAC.
How to Calculate Customer Acquisition Cost
You can calculate your CAC by following three quick steps.
Step 1: Choose a period.
Pick a time frame for your customer acquisition cost calculations — like a month, quarter, or year. This will help you narrow down the scope of your data.
Step 2: Calculate your CAC.
To find your company’s estimated cost of acquiring a new customer, add up all marketing and sales expenses, then divide the total by the number of new customers you acquired.
Use this CAC formula:
CAC = (Cost of sales + cost of marketing) ÷ Number of new customers.
For instance, let’s assume my company invested $300,000 in sales and $100,000 in marketing last quarter, yielding 500 new customers.
My CAC would be: ($300,000 + $100,000) ÷ 500 = $800.
Step 3: Compare your CAC to key business metrics.
After calculating your CAC, you’ll want to compare it to other vital business metrics. This shows you where the costs are highest in marketing, sales, and customer service so you can optimize them.
Featured Resource: Free Customer Acquisition Cost Calculator
Let’s look at some variables you should factor into your sales and marketing costs.
Types of Costs to Include in a CAC Formula
If you’re ready to calculate your customer acquisition cost but you’re not sure what your “cost of sales and marketing” is, check out seven categories worth including.
I’ve also included a few tips and tricks on how to lower the cost in each category moving forward.
Ad Spend
Ad spend is the money you allocate for advertisement. Advertising is a great way to attract new customers. However, to achieve your acquisition goals, your campaigns have to be relevant and resonate with your target audience.
With digital ad spend being expected to reach $700B globally in 2025, it’s a great time to review your ad campaign’s effectiveness to make sure your investments are paying off.
In order to do this, you’ll need to divide your ad revenue by your ad spend to gauge your return on investment.
Pro tip: As you review the impact of your current ad spend and consider new strategies, I’ve got a few tips and ideas for you to consider:
- Video ads outperform other digital ad formats by 120% — so don’t sleep on video ads!
- Get personal — 80% of consumers say they want ads tailored to their interests.
- Consider generational preferences to get the most bang for your buck. If your audience is Gen Z or millennials, meet them where they’re at with digital ads (and unsurprisingly, where they are is social media).
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Employee Salaries
Great employees don’t come cheap. But they’re always worth the investment. If their salaries are getting too high though, consider alternatives for reducing these costs other than pay cuts or layoffs.
Explore options like chatbots and marketing automation to boost productivity and supplement your team’s workflow.
Pro tip: As I mentioned above, automating lead qualification is a great way to make sure that your sales team is using their expertise to have fruitful conversations with leads versus spending time discovering if a lead is even qualified.
You can also automate the referral and customer testimony process for your CSMs. Consider putting triggers in place to automatically ask customers who submit a promoter score in NPS surveys to participate in your advocacy programs.
Creative Costs
When running a business, creative costs can cover a wide range of items that all contribute to content production expenses. This could include outsourcing design work, paying for editing, or using freelancers for specific projects.
Pro tip: While you can’t put a price on stellar creativity, don’t sleep on tools that can help automate the content creation process. Check out HubSpot’s Content Marketing Software, which includes a Case Study generator.
Technical Costs
Technical costs include the technology your marketing and sales teams use. For instance, if you buy a reporting tool that monitors the progress of your open deals, that would be a technical expense.
Pro tip: Sometimes you may be underspending on technical costs (like tools) but overspending in the employee salaries category if you’re requiring a bunch of manual work from different teams.
For example, I know personally that if a CSM has to craft 50 individual emails to go out requesting a referral and then track the responses in a spreadsheet somewhere, you’re spending a ton of money in CSM salary time on those efforts for that campaign.
Sometimes it’s just better to invest in a tool or technical resource to help with automation instead of spending so much of your budget in the employee salary category.
Publishing Costs
You incur publishing costs when promoting your brand. Influencer costs, TV air time, and paid appearances in magazines, newspapers, and podcasts are publishing costs.
Pro tip: Once you’ve calculated your CAC, plan to review this category and see which channels were worth the spend and which ones you could skip in the future.
Production Costs
Production costs cover everything you need to create your product or service. For instance, if you produce video content for your brand, you need to buy a camera, create a set, and edit the video. Expenses can pile up fast, especially if you’re not outsourcing.
Pro tip: It’s me, the automation evangelist again! If this category’s spend is larger than you’d like, consider automation tools to help with things like video editing, short clip creation, and even the production of written deliverables from your video content. I like tools like Wistia or Goldcast for this purpose.
Inventory Upkeep
Inventory means different things to different companies. If you’re selling physical goods, you’ll incur storage, handling, and transportation costs. But for SaaS companies like HubSpot, inventory upkeep involves spending on updates to keep customers happy.
Pro tip: If you find that your inventory upkeep is dragging you down, consider reassessing how you forecast. Consider the following questions:
- Are you using data or assumptions to forecast?
- Does your inventory management system have an AI component that gives you trends & insights? (If not, you’re missing out!)
- Can your inventory management system use that data to run a simulation for you?
Customer Acquisition Cost Examples
Let’s bring to life all we’ve discussed so far using examples.
Example 1: Digital Product or Service Company
Say I run a CRM software company and invested $30,000 in marketing and sales (all relevant costs included) that attracted 2,000 new customers. Now, I estimate spending an extra $50,000 yearly on tech and production for these new customers.
To calculate my CAC, I’d divide the total investment ($50,000 + $30,000) by the number of new customers (2,000).
So, CAC = ($50,000 + $30,000) ÷ 2,000
= $80,000 ÷ 2,000
= $40
This means I spent $40 to acquire each new customer.
Example 2: Physical Goods Company
Imagine I run a consumer goods business selling keto-friendly beverages. I spent $9,000 on sales and $15,000 on marketing (including overhead, incentives, and other campaign costs) to acquire 4,000 new customers.
So, CAC = ($9,000 + $15,000) ÷ 4,000
= $24,000 ÷ 4,000
= $6 per customer I acquired
My CAC only tells part of the story, though. So, I assess it against customer lifetime value. But how are these related? Let’s find out.
CLV to CAC Comparison
Customer lifetime value (CLV) is the total revenue I expect to earn from a single customer throughout our relationship. CLV is one of my favorite metrics to track because it helps me see the full picture of my marketing efforts, from lead acquisition to renewal and expansion.
Here are some things I keep in mind:
- Some campaigns won’t yield instant profits. Maximum profitability comes from customers continuing to purchase over time.
- Products with tight margins and high CAC fall into this category. Examples include grocery retail, consumer electronics, and subscription products. So, I can acquire a customer for $100, knowing they’ll spend $50 monthly on my product for the next two years.
- CLV is also valuable for highly profitable products. Premium products command instant or near-instant profits the first time customers buy because they typically sell for thousands of dollars per unit. For instance, Adobe Commerce subscription costs $22,000 yearly, and that price increases as your gross merchandise value increases.
Understanding the CLV helps me strategize for renewals, upsells, and customer retention, maximizing my overall profitability.
How to Calculate a CLV
I calculate a CLV by multiplying my customer value by the average customer lifespan.
How do you derive these figures, though? Here are some variables to plug into the formula:
- Average purchase value (APV). Divide your company’s total revenue in a specific period by the number of sales during that same period.
- Average purchase frequency (APF). Divide the total number of completed sales over a specific period by the number of buyers.
- Customer value. Multiply your APV by your APF.
- Average customer lifespan. Average out the number of years a customer continues buying from you.
Since CLV tells me how much money I’ll make from a customer, I want to know how it compares to the cost of acquiring (and keeping) that customer. This comparison is the CLV to CAC ratio (CLV:CAC).
CLV to CAC Ratio
The CLV to CAC ratio guides your marketing, sales, and customer service spending. It provides a quick view of how much value customers bring compared to their acquisition costs.
Aim for a balanced ratio to maximize profitability. Ideally, you want to recoup the cost of acquiring a customer within a year, aiming for a CLV:CAC of 3:1. This means the lifetime value of each customer should be three times the acquisition cost.
If your ratio is closer to 1:1, it means you spend as much on acquiring customers as they’re worth. On the other hand, if your ratio is higher than 3:1 (e.g., 5:1), it means you’re not spending enough on sales and marketing, so you could be missing out on opportunities to attract new leads.
When asked how CLV influences their customer acquisition strategies, Lina Lugova said: “We analyze the CLV of different channels or multi-channel combinations and prioritize our budgets according to this metric.”
Marcelo Salup shares the same view. He considers CLV “the second most important variable after the maximum allowable cost of acquisition.”
So, the question you’re probably asking is, “What does a good CAC look like?”
The answer is that it varies by industry. In the next section of this guide, I’ll walk you through the average customer acquisition costs across different industries.
Customer Costs by Industry
The cost of acquiring customers will vary widely between industries. Factors like competition, market trends, business models (i.e., B2C vs B2B), and even industry regulations influence the cost of customer acquisition uniquely by industry. There are, however, a few common factors that influence CAC across industries, such as:
- Length of the sales cycle. How long does it take to close a sale?
- Purchase value. How much does the product cost?
- Purchase frequency. How often does a customer typically buy?
- Customer lifespan. How long does a customer remain a customer?
- Company maturity. How developed is the company?
If you’re curious what the average organic and inorganic CAC is across industries, check out this summary from FirstPageSage.
Now that you know where your industry stands, how do you improve your company’s CAC against this industry benchmark?
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How to Improve Customer Acquisition Cost
From adopting new technologies to forging healthy partnerships and optimizing sales processes, I’ve explored several strategies to help bring your CAC down.
I also thought it would be helpful for you to hear from industry leaders on how they’re driving success with their CAC.
Tayler Cusick-Hollman, founder and CMO of the marketing software company Enji, noted that “Customers are validating and justifying purchases via more channels than in the past.”
In response, Enji is adapting its messaging for multiple channels. Cusick-Hollman acknowledges that crafting channel-specific messaging is challenging, especially for businesses with small marketing teams. However, she suggested getting to know customers better and experimenting more to clarify what needs adjusting to boost your CAC.
Let’s dive into a few strategies designed to help you lower your CAC.
Invest in conversion rate optimization (CRO).
Optimizing your website’s conversion rate can require an initial investment of time up front, but the ROI is worth it.
Data shows that CRO can take up around 30% of your marketing budget. Revisiting and optimizing your site’s conversion rate helps you make better use of the existing traffic that you worked so hard to drive to your website.
Additionally, by optimizing your website’s conversion rate, you help create a better user experience, improve lead generation and subsequently get a higher return on your marketing spend.
Start by ensuring your website is mobile-friendly, test the copy for clarity, and create a touchless sales process so visitors can buy any time. Then test your content consumption and see what content is driving the best results.
Add value to your offerings.
Providing extra value to customers helps you not only stand out from the competition, but it also helps increase customer loyalty.
But what does it mean to add value? It means to give customers what they want. By collecting their feedback and delivering on their requests, customers feel heard and supported by your company.
In my experience, customers are quick to share what they want (and need) from your company, but you have to ask them and subsequently act on the responses.
In my role, I lead customer webinars. I read every single feedback submission and find that customers often have the best ideas for how to enhance the customer experience, and they’re often low-lift to execute on.
Invest in customer service.
I consider a company’s customer service the “canary in the coal mine.” If a company has poor customer support, chances are the rest of my experience with them won’t be great either.
I’m not alone in this line of thinking, as data shows that 73% of customers say that customer experience is a key factor in their purchasing decisions, even more so than price and product quality. And 85% of customers say that a positive support experience makes them more likely to repurchase, contributing to a higher lifetime value.
On the flip side, customers are quick to jump ship after a bad customer service experience. This reinforces that great customer service not only affects your CAC but your CLV as well.
I worked in a competitive SaaS landscape and saw plenty of high-paying enterprise customers switch companies due to a poor customer service experience. Prevent this from happening to your company by making it easy for customers to self-serve and find what they need quickly.
Here are a few ways to accomplish this:
- Set consistent support expectations with customers — make sure they know how to reach you and when they can expect a response.
- Implement omnichannel support via email, AI chatbots or AI Agents, and a support phone number.
- Provide robust self-serve resources like a knowledge base. (Make sure your help articles are up-to-date and reflect the current UI and new features/enhancements.)
Leverage a customer advocacy program.
Customer referrals are one of the most cost-effective acquisition strategies out there. By having your happy customers share their positive experience, you can drive even more business at a very low (or sometimes free) CAC.
I know that my customers who are happy with their experience are often more than willing to write a review, serve as a reference, or participate in a case study.
Customer advocacy efforts can make a significant impact on your CAC and CLV. Referred customers tend to be more loyal, purchase more over time, and are more likely to refer other customers to your brand.
Formalize this process by creating a referral program that turns customers into brand advocates. You can leverage your happy customers for things like:
- Leaving reviews on your website, Google, or places like G2.com.
- Filling out a testimonial form that you can use on your website and in marketing collateral.
- Joining a reference call with a customer of a similar company size or in the same industry.
- Co-presenting a webinar (I do this in my role, and customers love hearing directly from a successful user of our product!).
- Participating in a case study.
All of these options generate free or low-cost word-of-mouth marketing for you, and since customers are more likely to purchase a product after reading reviews or from a referral, this strategy is sure to lower your CAC and increase your CLV.
Pro tip: If you can afford it, try to incentivize customers for these actions. While this will add to your CAC slightly, it’s a nice touch and could help you drive more participation.
Streamline your sales cycle.
I’ve seen companies shorten their sales cycle and increase their yearly sales by using the right tools and an efficient strategy. Leveraging things like HubSpot CRM and prospecting tools to connect with more qualified leads quickly allows your hot leads to come straight into the sales cycle.
Streamlining your sales cycle is a low-hanging fruit since HubSpot CRM is free.
Pro tip: Look for areas of friction in the sales cycle, and do a closed/lost analysis. For friction, where are customers getting slowed down or stuck in your sales cycle? For closed/lost, where are the leaks or gaps in the process?
I’m a big proponent of using customer feedback to streamline processes, so I’d suggest talking to customers about their experience in your sales cycle. You should also gather feedback from every stage of your sales cycle to review, not just your closed/won customers.
Understand the CAC meaning and calculations for your industry.
Unfortunately, there’s no magic number for the ideal CAC, since it will be heavily influenced by your industry.
To ensure you’re getting a comprehensive CAC measurement, I suggest bringing in stakeholders across departments to truly understand how each department views the cost of acquisition.
Whatever your CAC measurement is, using targeted strategies like streamlining your sales cycle, leveraging a customer advocacy program, and investing in conversion rate optimization are strategies sure to help you see some financial gains.
By following the tips I’ve provided in this guide, you’ll ensure that your company is paving the way for sustainable growth via more streamlined marketing efforts.
Editor's note: This post was originally published in January 2023 and has been updated for comprehensiveness.
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- Customer Acquisition Cost
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- And More!
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