What is Customer Acquisition Cost (CAC)?

CAC is the average amount of money you spend to acquire a new paying user. It includes all marketing and sales costs divided by the number of new customers acquired.

For example, if you spend $2,000 on ads and get 100 paying users, your CAC is $20. It tells you how much it costs to turn interest into revenue.

How does it work?

The formula is:

CAC = Total acquisition cost ÷ Number of new customers

Acquisition cost can include:

• Paid media (ads)

• Team salaries (if tied to acquisition)

• Tools and software

• Agency fees or consultants

It’s usually calculated over a defined time period and filtered by specific goals (e.g., cost per paid subscriber, not per install).

Let's say if 1,000 users install your app from a $1,000 campaign, your Cost Per Install (CPI) is $1. But if only 100 of them convert to paid users, your CAC is $10.

Why it matters

CAC is critical for understanding unit economics. It tells you whether your acquisition strategy is sustainable, and how fast you can afford to grow.

Your CAC must stay lower than your LTV to build a profitable business. Otherwise, you’re spending more to acquire users than they’ll ever pay you back.

It also helps you evaluate channel efficiency. One channel might have a higher CAC but better retention or LTV, making it more valuable than a cheaper but less sticky one.

Improving CAC can come from better targeting, better conversion rates, or better creatives. It’s not just about spending less, it’s about spending smarter.