What Is CAC? Customer Acquisition Cost Formula

What is CAC (customer acquisition cost)?

CAC, or customer acquisition cost, is the average amount you spend to win one new paying customer. You calculate it by dividing your total sales and marketing costs for a period by the number of new paying customers you gained in that period. If you spend $6,000 in a month and win 150 new customers, your CAC is $40.

The key word is customer. CAC counts people who pay, not clicks, installs, or free sign-ups, which is what separates it from most cost-per numbers in ad reports.

The customer acquisition cost formula

CAC = sales and marketing costs in the period / new paying customers in the period

The formula is simple. The hard part is deciding what goes on each side.

Costs to include

• Ad spend on every paid channel, including pay-per-result campaigns.
• Creative and content production, agencies, and freelancers.
• Marketing and sales tools, such as attribution, email, and CRM software.
• The share of salaries spent on marketing and sales.
• Referral rewards, sign-up bonuses, and free trial costs, if they exist to win customers.

Customers to count

Count only customers who are new in the period and have paid, using the same definition every month. A free trial that has not converted is not a customer yet. If you track by cohort, attribute customers to the month they were acquired, not the month they first paid, so a slow trial does not push cost and customer into different months.

Paid CAC and blended CAC

Paid CAC uses ad spend and customers from paid channels only, and tells you whether advertising works. Blended CAC uses all costs and all new customers, including organic and word of mouth, and tells you whether the business works. Report both. CAC vs CPA vs LTV explains why a good blended number can hide a paid channel that loses money.

A worked example

Notice the gap. A dashboard would show a cost per install under a dollar, while the real cost of a customer is $40. Every step of the funnel between the ad and the first payment multiplies the price.

CAC vs CPA: what is the difference?

CPA, or cost per action, is the cost of one action you chose to count. CAC is the cost of one paying customer. They are the same only when the action is the first purchase. In most ad platforms the action is something earlier:

• Apple Ads defines Average CPA (Total) as total campaign spend divided by total installs, and its installs include redownloads, according to its reporting definitions. That “acquisition” is a download, not a customer.
• Google Ads describes Target CPA as a bid strategy where you set your desired average cost per conversion, and for App campaigns a conversion can be an install or an in-app action.

So a platform’s CPA is an input to CAC, not a replacement for it. To go from one to the other, divide by the share of actions that become paying customers: CAC ≈ CPA ÷ conversion to paying. Add non-ad costs on top for the full figure. What is CPA? covers the metric and the pricing model in detail.

What is a good CAC?

A CAC is good or bad only next to what the customer is worth. Two checks matter:

• LTV to CAC ratio. Divide lifetime value by CAC. About 3 to 1 is a common rule of thumb; below 1, each customer loses money.
• Payback period. Divide CAC by the monthly gross profit per customer. With a $40 CAC and $7 of profit a month, a customer pays back in under 6 months.

The LTV and CAC calculator runs both checks, using LTV = monthly revenue per customer × gross margin ÷ monthly churn, and shows the most CAC a 3 to 1 ratio allows. To turn that ceiling into the price you can pay per install, lead, or sign-up, use the cost per result calculator.

Google Ads builds this idea into bidding: its customer lifecycle goals include a new customer acquisition goal that can bid higher for new customers than for existing ones. That only makes sense when you know what a new customer is worth to you.

How to lower CAC

• Fix the funnel before buying more traffic. In the example, lifting trial to paid from 13.3% to 16.7% cuts CAC from $40 to $32 with the same spend.
• Pay for results, not reach. Paying per completed action moves the risk of weak traffic to the channel. Paying only for approved results explains how.
• Grow referrals and organic channels. They lower blended CAC, but track them apart so they do not hide a weak paid channel.
• Cut channels that look cheap but do not convert. Judge each channel on CAC per cohort, not on CPI alone, and watch for fake installs and bot traffic.

Common CAC mistakes

Where an offerwall fits into CAC

An offerwall touches CAC from both sides. For an advertiser, a pay-per-result affiliate network like Moonetix sells completed actions: users on publishers’ sites and apps complete an offer for the publisher’s own currency, and the advertiser pays per confirmed conversion. That gives a known CPA, but rewarded users can behave differently after the reward, so measure CAC and LTV for that cohort before scaling. For a publisher buying its own users, the wall does not lower CAC. It adds revenue from users who never pay, which raises LTV and so the CAC you can afford.

Frequently asked questions