CAC (customer acquisition cost) is the average sales and marketing expense to acquire one new customer in a given period.

How it works

The basic formula:

CAC = Sales & marketing spend ÷ New customers acquired

Include fully loaded S&M: ads, salaries, commissions, tools, and agency fees. Exclude product and G&A unless your model deliberately loads CAC differently — but stay consistent quarter to quarter.

SaaS companies often segment CAC by channel (paid search vs enterprise sales) and by customer type (SMB vs enterprise). Blended CAC mixes channels; paid CAC isolates marginal spend on ads. Investors care about both: blended shows overall efficiency; paid shows scalability of a channel.

CAC alone is incomplete. Pair it with LTV (lifetime value), gross margin, and CAC payback — months until gross profit from a customer recovers acquisition cost.

Boards often track CAC trend lines, not single-quarter snapshots. A rising CAC with flat conversion may mean channel saturation; falling CAC with rising churn may mean you are acquiring low-fit customers cheaply — both deserve investigation before scaling spend.

Why it matters

• Founders: Rising CAC without product improvements may mean market saturation or weak messaging — not just “spend more.”
• Investors: LTV:CAC ratios below sustainable thresholds (often discussed around 3:1 for healthy SaaS, context-dependent) trigger questions about growth quality.

Common mistake

Dividing all revenue by all customers ever, or counting expansion revenue as “new” customers. Define “new customer” and the time window before you report CAC to your board.

Related ideas

See also CAC payback, LTV, burn multiple, and net dollar retention.