Metrics & Performance
Last updated
Quick Answer
The total cost of acquiring a new customer, including all sales and marketing expenses.
Customer Acquisition Cost
CAC = Total Sales & Marketing Spend / New Customers Acquired
Where
Customer Acquisition Cost (CAC) measures the total cost of winning a new customer, calculated by dividing total sales and marketing spend by the number of new customers acquired in a period. Blended CAC includes all customers (organic and paid), while paid CAC focuses only on paid channels. CAC is most meaningful when compared to Lifetime Value (LTV) — the LTV:CAC ratio should typically exceed 3:1 for sustainable growth.
In Practice
A company spends $500K on sales and marketing in a quarter and acquires 50 new customers. CAC = $500K / 50 = $10K per customer. With $36K LTV, the LTV:CAC ratio is 3.6x.
Why It Matters
CAC determines whether growth is economically sustainable. Rising CAC signals market saturation or inefficient go-to-market, while declining CAC suggests strengthening brand or product-led growth.
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Customer Acquisition Cost (CAC) measures the total cost of winning a new customer, calculated by dividing total sales and marketing spend by the number of new customers acquired in a period. Blended CAC includes all customers (organic and paid), while paid CAC focuses only on paid channels.
Understanding Customer Acquisition Cost is critical for founders navigating the fundraising process. It directly impacts deal terms, valuation, and the relationship between founders and investors.
Customer Acquisition Cost falls under the metrics category in venture capital. This area covers concepts related to the quantitative measures used to evaluate fund and company performance.
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