CAC
CAC, or Customer Acquisition Cost, is the total average expense a company incurs to acquire a new paying customer, including marketing and sales costs.
How it works
It is calculated by dividing the total costs spent on acquiring more customers (like advertising or sales salaries) by the number of customers acquired in that same period. This metric is crucial for SaaS businesses to measure the efficiency of their growth strategies and ensure that the cost to acquire a customer is significantly less than the revenue that customer will generate over time (Lifetime Value or LTV).
Examples
- 1.A software company spends $10,000 on Google Ads in a month and gains 100 new subscribers; its CAC for that campaign is $100 per customer.
- 2.A startup calculates its CAC by adding up its annual sales team salaries and marketing budget, then dividing by the total number of new customers signed that year.