How Do You Calculate Customer Acquisition Cost?

What Is Customer Acquisition Cost, and How Do You Calculate It?

Customer acquisition cost (CAC) is the average amount you spend to win one new customer, worked out as the cost of winning new business in a period divided by the new customers won in that period. Calculate it for a period at least as long as your sales cycle, from records you control, and write down what you included so the next calculation is comparable.

1. Pick the period, at least as long as it usually takes a lead to become a customer, such as last quarter for a buyer who takes six to eight weeks to sign.
2. Decide which version you need: blended (every channel), paid (paid media only) or one channel at a time.
3. Add up the costs of winning new business in that period: ad spend, agency and tool fees, content and creative, and the share of marketing and sales salaries spent on new business rather than existing customers.
4. Count the new customers won in the same period from your CRM or sales records, not from the ad platforms’ conversion reports.
5. Divide the costs by the new customers.
6. Put the result beside what a customer is worth to you, because CAC on its own can’t tell you whether the spend paid back.

Step 4 is where CAC figures most often go wrong in the accounts we review, because each ad platform counts the customers it touched, and two platforms will often claim the same one. The Channel Selection step shows how to set up a source of truth that counts each customer once.

What Is Included in Customer Acquisition Cost?

Include every cost you would stop paying if you stopped trying to win new customers, and nothing you would still pay to serve the customers you already have. That usually means ad spend, agency and tool fees, content, and the share of marketing and sales time spent on winning new business.

The salary line can change the answer a lot, and it’s a judgment rather than a lookup, so agree on the split with finance once (for example, the share of each salesperson’s time spent on new accounts) and keep it fixed between periods. A CAC that changes because someone changed the method tells you nothing about your marketing.

What Is Blended CAC, and When Should You Use Paid or Channel CAC Instead?

Blended CAC divides all your costs of winning new business by all new customers, including the ones who found you through referrals, word of mouth or a search for your name. It’s the right number for the board and for checking whether the business as a whole wins customers profitably, but it hides which channels are paying back.

• Blended CAC answers whether customer acquisition as a whole is affordable. Because it includes customers you’d have won with no spend at all, it usually looks lower than any single paid channel.
• Paid CAC counts only customers won through paid media, divided by what you spent winning them. It answers whether your advertising pays back, and it moves directly with ad costs.
• Channel CAC does the same for one channel at a time, such as Google search or LinkedIn, and it’s what you need to decide where next quarter’s money goes, which the Channel Selection step works through.

Whichever version you report, label it as ad-only or fully loaded, because the two can differ by more than the channels differ from each other.

Ranked on ad-only cost, Google looks more than twice as efficient as LinkedIn, and both look cheaper than they are. That doesn’t make the ad-only number wrong, since it’s the right way to compare channels against each other, but it would understate the cost of growth if it went into the budget as the price of a new customer.

How Do You Find Customer Acquisition Cost From Your Own Data?

Take costs from your accounting system and the platforms’ billing, and take new customers from your CRM, then line up the period so the customers you count are the ones that spend produced. The platforms’ own reports are a useful second opinion, but they shouldn’t supply the customer count.

The period matters most when buyers take months to decide. Spend in one quarter produces customers partly in the next, so a short window makes a long-cycle channel look expensive in the quarter you raise it and cheap in the quarter you cut it. If your buyers typically sign three months after first contact, calculate CAC over at least a quarter, or a rolling six or twelve months, and compare like with like.

The platforms’ counts have limits of their own. Google Ads, for example, counts a conversion only if it happens within the conversion window after the ad click, which is 30 days by default and can be set to at most 90 days for Search and Display campaigns, and a conversion after the window isn’t recorded.¹ A buyer who clicks and signs four months later is invisible to that report, while the same report may count form fills that never became customers, which is why we count customers in the CRM and ask every new customer how they heard about you. The same applies to Facebook and Instagram ads: use Meta’s spend, and your CRM’s customers.

How Do You Know If Your Customer Acquisition Cost Is Too High?

Your CAC is too high when a customer doesn’t earn back what it cost to win them within a time your cash flow can carry, and that depends on what your customers are worth over time, how soon that profit arrives and what you’re trying to grow. No fixed ratio or industry average can answer it for you, and what is a good customer acquisition cost explains why the published averages and the 3:1 rule disagree.

To work out your own limit, find the gross profit a typical customer brings each year and over the whole relationship, which the guide to calculating customer profitability walks through, then decide how long you can wait to earn the cost back. A business whose customers buy once, or bring most of their profit in the first year, can afford far less than one whose customers stay for years, and a company with a tight cash position may need a faster payback than its customer value alone would allow.

Read CAC beside two other numbers before you call it too high:

• What each channel’s customers are worth, because the contractor’s LinkedIn agreements cost more to win than Google’s and cover more buildings, so the expensive channel brought in the most valuable customers.
• The cost of the next customer as well as the average, because the average rises slowly as spend grows while each added customer can cost far more.

If you’re looking at advertising alone, return on ad spend asks the same question from the revenue side, and our page on what a good ROAS is explains why it needs the same margin check.