Customer Acquisition Cost (CAC)

Customer Acquisition Cost measures the total sales and marketing cost required to acquire a new customer. It is calculated by dividing sales and marketing expense over a period by the number of new customers acquired.

CAC typically includes all costs associated with the sales and marketing organization, including compensation, advertising, marketing programs, and related tools, to give a fully burdened view. Because acquisition spending and customer conversion do not always occur in the same period, CAC can be volatile when sales cycles are long or customer additions are lumpy.

CAC is useful when evaluated relative to cumulative gross profit generated by the customers acquired. A higher CAC may be appropriate for larger, more durable customers, while a lower CAC can still be uneconomic if customers generate little gross profit or churn quickly. For businesses with uneven customer acquisition, trailing measures can provide a more useful view of the underlying trend than a single period.

MetricFrame calculates CAC by dividing sales and marketing expense by new customers acquired and reports the metric across multiple time horizons to provide both a current-period and trailing view. Users can tag any expenses they want as S&M and those expenses will be included in the numerator of the calculation.

For cohort unit economics, MetricFrame uses an adaptive trailing CAC measure designed to reduce timing distortion from longer sales cycles. CAC is also used in the calculation of CAC Payback and LTV / CAC.