What is Customer Acquisition Cost?
Definition
The total cost of sales and marketing efforts required to acquire a new paying subscriber, calculated as total acquisition spend divided by new customers gained.
Understanding Customer Acquisition Cost
Customer Acquisition Cost (CAC) is a critical metric for subscription businesses. It includes advertising spend, sales team costs, marketing tools, and any free trial or onboarding costs. A healthy SaaS business maintains an LTV:CAC ratio of at least 3:1, meaning each customer generates 3x more revenue than it costs to acquire them.
CAC varies dramatically by industry — consumer SaaS might be $50-200, while enterprise SaaS can be $5,000-50,000. For consumers, understanding CAC explains why services offer generous free trials and discounts — they're investing in acquiring you as a customer.
Related Terms
Lifetime Value
The total revenue a business expects to earn from a single customer account over the entire duration of their subscription relationship.
Churn Rate
The percentage of subscribers who cancel their subscription during a given time period, typically measured monthly or annually.
MRR
Monthly Recurring Revenue — the predictable total revenue a subscription business expects to earn each month from all active subscriptions.
Conversion Rate
The percentage of users who upgrade from a free plan or trial to a paid subscription.