Customer Acquisition Cost (CAC)

CAC sets the ceiling on how profitably a business can grow. Compare it with what a customer pays back over time, known as lifetime value. At £10,000 to win and £30,000 back, there is room to grow. At £10,000 to win and £12,000 back, there is almost none, and one bad month of churn wipes out the margin. Split by channel, CAC also shows where each pound works hardest, because two channels rarely win a customer for the same money.

• Include every cost of winning a customer, and use the same definition each time so quarters stay comparable.
• Match the period. Customers won this quarter often came from spend in the previous one, so use a lag if the sales cycle is long.
• Calculate it per channel and per customer type. A blended average hides the channel that is quietly expensive.
• Compare it with gross profit, not revenue. A common test is whether CAC is recovered within roughly 6 to 12 months of gross profit.
• Read a rising CAC as a diagnosis. Harder-to-reach buyers, a weaker offer or slow follow-up all show up here first.

CAC answers one question: how much does it cost to get a customer? Add up everything spent on sales and marketing in a period, then divide by the new customers won in the same period. If £30,000 was spent in a quarter and 12 customers signed, CAC is £2,500.

The spend side is wider than ad budget. It includes content, events, software, agency fees, sales salaries and commission, and often early onboarding. Counting only ad spend gives a flattering number that hides the real cost.

• Counting only advertising spend. Salaries, commission, agency fees and tools are part of the cost of winning a customer.
• Mixing periods. Customers signed this quarter often came from last quarter's spend, so a long sales cycle needs a lag.
• Relying on one blended number. A cheap channel can hide an expensive one.
• Judging CAC without a view of what the customer pays back. A low CAC on customers who leave quickly is not a good result.
• Counting free trials or unqualified sign-ups as customers, which flatters the figure.
• Changing the definition from quarter to quarter, so the trend means nothing.