CAC (Customer Acquisition Cost)

How it works

CAC = (Sales + Marketing spend in a period) / New customers acquired in that period. Fully-loaded CAC includes salaries, tools, ad spend, content, and brand. Investors usually look at CAC alongside LTV (lifetime value) — the LTV/CAC ratio should be at least 3:1 for a healthy business, and CAC payback should be under 12–18 months for SaaS.

Related terms

• LTV (Lifetime Value)
  LTV is the total revenue (or gross profit) a company expects to earn from a customer over their entire lifetime.
• CAC payback period
  CAC payback period is the number of months it takes to recover the cost of acquiring a customer through their gross-margin contribution.
• Burn rate
  Burn rate is how much cash a company spends per month, net of revenue — the rate at which it's depleting its bank balance.