What is CAC, and how do I work it out?
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Founder, ProveWorth
In a hypothetical example, you spend $180 on a mailer and win one new weekly customer, so your CAC is $180. CAC means customer acquisition cost, the money it took to win one new customer.
Add up what you spent to win customers over a set period, then divide by the new customers from that same period. Include printing, postage, ad fees and the hours you spent selling. Write down anything you left out of the total.
The catch is the divisor. Divide by leads and you get cost per lead, which is a different number. A customer who comes back after a pause is not new.
What costs belong in CAC?
Everything you paid or worked for to win those customers. Printing, postage, ad fees, design and the hours you spent selling all count.
Put a price on your own time, even a rough one, and keep it the same every month. A CAC with its exclusions written beside it is one you can compare later.
Why isn't cost per lead the same as CAC?
A lead is an inquiry, and an inquiry is not a paying customer yet. Divide spend by leads and you have measured the cost of a phone call.
Here are two hypothetical campaigns that each spend $1,000. The first brings 100 inquiries and 5 customers, so it costs $10 a lead and $200 per customer. The second brings 20 inquiries and 8 customers, so it costs $50 a lead and $125 per customer. The pricier lead was the cheaper customer.
Google Analytics 4 keeps a generated lead, a qualified lead and a converted lead (a customer) as separate events. Tracking the stages apart is the habit worth copying.
Do returning customers count as new?
No. A customer who paused service and restarts is a reactivated customer, so leave them out of the divisor. They are real revenue that did not cost you an acquisition.
Give free referrals their own row. They cost no media dollars, and blending them into a paid campaign makes the paid number look better than it is. That part is my own advice.
Where do I write it down?
A notebook page or a spreadsheet is enough. Use four columns: the period, what you spent, the new customers and the CAC.
What do I do next?
Once you have a CAC, see how long a customer takes to pay it back in CAC payback period. Compare ad numbers in ROAS vs ROI. The longer version is customer acquisition cost for service businesses.
Reviews on your own page give the next customer a reason to call you. You can get your free page or see how it works.
Sources
Key takeaways
- 1CAC is the money you spent to win customers in a period, divided by the new customers from that same period.
- 2Count printing, postage, ad fees and the hours you spent selling, and write down what you left out.
- 3Dividing by leads gives cost per lead, a different number from CAC.
- 4A customer who returns after a pause is reactivated, so leave them out of the divisor.
- 5In the hypothetical example, $180 spent on one new weekly customer is a CAC of $180.
Related questions
What does CAC stand for?
CAC stands for customer acquisition cost. It is the money it took to win one new customer.
How do I calculate CAC?
Divide what you spent winning customers in a set period by the new customers from that same period. For example, spend $180 and win one customer, and CAC is $180.
Is cost per lead the same as CAC?
No. Cost per lead divides spend by inquiries. CAC divides spend by new customers, and an inquiry is not a customer yet.
Do I count my own time in CAC?
Yes, when you spend meaningful hours selling. Put a rough price on an hour and keep it the same each month.
Do repeat customers count as new?
No. A customer who paused and restarted is reactivated. Leave them out of the new-customer count.