What is Customer Acquisition Cost (CAC)?
The total cost of winning a customer to purchase a product or service.
Deep Dive
CAC is a fundamental business metric calculated by dividing all sales and marketing costs by the number of new customers acquired in a specific period.
Ideally, your LTV (Lifetime Value) should be at least 3x your CAC for a sustainable business model. If CAC is higher than LTV, the business is losing money on every customer.
Key Takeaways
- Includes ad spend, salaries, software, and creative costs.
- Critical for determining profitability and scalability.
- Should decrease as brand authority grows.
- Balancing CAC and volume is key to growth.
Why This Matters Now
CAC is the price tag of growth. It tells you exactly how much cash you need to burn to light the fire.
It's not just about ads. If you hire a VP of Sales for ₹20L and they bring in 10 customers, that salary is part of the CAC. Ignoring 'embedded' costs is how startups run out of money.
Common Myths & Misconceptions
CAC only includes ad spend.
Reality:False. It includes agency fees, creative production costs, sales commissions, and software subscriptions. That's 'Fully Loaded CAC'.
Lowest CAC is the goal.
Reality:Not always. You can lower CAC by bidding on cheap, irrelevant keywords, but those customers won't stay. You want the lowest CAC for *high-quality* customers.
Real-World Use Cases
Investor Pitch: 'Our LTV is ₹10k and our CAC is ₹2k. Give us money and we will turn every ₹1 into ₹5.'
Channel Evaluation: Realizing that LinkedIn Ads have a high CAC (₹500) but bring enterprise clients, while Facebook (₹100) brings small business.
Frequently Asked Questions
What is the Payback Period?
How many months it takes for a customer to pay back their CAC. If it's >12 months, you need a lot of cash in the bank to survive.
How does organic traffic affect CAC?
It lowers the *blended* CAC significantly. If you get 50% of customers from SEO (free), your average cost per customer drops.
We Can Help With
Performance Marketing
Looking to implement Customer Acquisition Cost (CAC) for your business? Our team of experts is ready to help.
Explore ServicesNeed Expert Advice?
Don't let technical jargon slow you down. Get a clear strategy for your growth.