What is CAC? – Customer Acquisition Cost – CAC Definition
If you’re growing a SaaS business, understanding your CAC is essential. CAC stands for Customer Acquisition Cost. It tells you how much it costs, on average, to turn a lead into a paying customer.
Whether you’re running ads, building a sales team, or producing content, those efforts all come at a price. CAC helps you measure the return on those investments and determine if your growth is sustainable.
What is Customer Acquisition Cost?
Customer Acquisition Cost is the total amount of money your business spends to acquire a new customer. This includes all sales and marketing costs, divided by the number of new customers gained in a given period.
Example: If you spend $12,000 in a month on marketing and sales, and you bring in 100 new customers, your CAC is:
CAC = $12,000 ÷ 100 = $120 per customer
This tells you that each customer costs your business $120 to acquire.
Why CAC Matters in SaaS
In SaaS, most revenue comes from subscriptions over time, not large upfront payments. That makes CAC even more important. If it costs more to acquire a customer than they pay you over their lifetime, you’re losing money.
Understanding CAC helps you:
- Know if your growth is profitable
- Control your marketing and sales budget
- Improve decision-making around pricing and product
- Align with key metrics like Lifetime Value (LTV) and payback period
If you’re not measuring CAC, you’re essentially flying blind when it comes to growth strategy.
How to Calculate CAC
To calculate CAC, use this formula:
CAC = Total Sales and Marketing Costs ÷ Number of New Customers
Be sure to include all related expenses. These may include:
- Paid advertising
- Sales and marketing team salaries
- Software tools and platforms
- Content production
- Events, sponsorships, or trade shows
- Contractor or agency costs
Only count paying customers in your calculation. If you include leads or free trial users who haven’t converted, your CAC will appear lower than it actually is.
What’s a Good CAC?
There’s no one-size-fits-all number, but there are common benchmarks to guide you.
One of the most important is the LTV to CAC ratio. A healthy SaaS business typically has a 3:1 ratio. That means for every dollar you spend acquiring a customer, you earn three dollars in revenue over that customer’s lifetime.
You should also look at your CAC payback period. This tells you how long it takes to recover the money you spent acquiring the customer. In SaaS, a payback period under 12 months is usually considered healthy.
How to Reduce CAC
Improving your CAC doesn’t necessarily mean slashing your budget. It means making your sales and marketing more effective. Here are a few ways to lower CAC:
1. Improve targeting
Focus on attracting the right customers, not just more traffic. Use customer data to refine your audience.
2. Optimize your conversion funnel
Review how visitors move through your site and sales process. Fix bottlenecks that cause leads to drop off.
3. Shorten the sales cycle
Make it easier for prospects to understand your value and make a decision faster.
4. Invest in organic channels
Content marketing and SEO can generate compounding results over time, reducing reliance on paid ads.
5. Align sales and marketing
When both teams work toward shared goals, leads convert more efficiently.
6. Use automation
Marketing and sales automation tools help you scale efforts without scaling cost.
Final Thoughts
Customer Acquisition Cost is one of the most important SaaS metrics to track. It tells you whether your marketing and sales strategies are working and if your business can scale profitably.
Track it often, break it down by channel or customer type, and always compare it to your customer’s lifetime value. That’s how you build a strong foundation for sustainable growth.
