CAC is the total cost of acquiring a new customer, including all sales and marketing expenses. This includes things like advertising, sales commissions, lead generation and nurturing, and any other costs associated with getting a new customer to sign up for your service.
CAC is a key metric for companies, because it directly impacts the bottom line. High CAC means that a company is spending more to acquire each customer, which can eat into profits. On the other hand, low CAC means that the company is acquiring customers efficiently and effectively, which can help drive long-term growth. Additionally, CAC provides valuable insights into sales and marketing strategies, enabling data-driven decisions that improve efficiency and return on investment (ROI).
To calculate CAC, divide total sales and marketing expenses spent on acquiring new business for a given period of time by the number of new customers acquired during that same period.
CAC = Total Sales & Marketing Expenses Spent on New Business / Number of New Customers
It’s important to note that CAC should be calculated regularly and over a meaningful period of time, like a quarter or a year, to provide a comprehensive and accurate view of acquisition costs.