Customer acquisition cost: What does a new customer really cost us?

Customer acquisition cost, or CAC for short, is all your marketing and sales costs for a period divided by the number of new customers won in that period. Many businesses only count advertising spend and therefore seriously underestimate their CAC. The figure only becomes meaningful when you compare it with the value a customer brings over time.

The formula

CAC = (marketing costs + sales costs) ÷ number of new customers

The costs include:

• Ad spend across all channels, i.e. Google Ads, social media, trade fairs and print.
• Costs for agencies, freelancers and tools.
• The relevant share of marketing and sales salaries.
• Commissions and sales bonuses.

Costs for existing customers, such as customer service or upselling campaigns, do not belong in the calculation.

Worked example

A service provider spends €9,000 on Google Ads in a quarter, €4,500 on an agency and €1,500 on tools. Its share of sales costs comes to €15,000. It wins 20 new customers.

CAC = (9,000 + 4,500 + 1,500 + 15,000) ÷ 20 = €1,500 per new customer.

Had the company counted only ad spend, it would have arrived at €450. Decisions about whether a channel is worth it would turn out completely differently based on that figure.

What is a good value?

That depends on customer value, the customer lifetime value (CLV): the contribution margin per customer over the entire relationship. A widely used rule of thumb is that CLV should be at least three times CAC. If a customer in the example brings in €6,000 contribution margin over three years, the ratio is 4 to 1. That is healthy and argues for investing more in acquiring customers.

Why the calculation is hard in practice

1. Data sits in different systems: ad costs in Google Ads, enquiries in Analytics, orders in the CRM, salaries in accounting.
2. Time lag: someone who clicks today might buy in three months.
3. Channels work together: a customer sees an ad, reads an article and then calls.

So calculate CAC in total first and only then per channel. The total figure is robust; splitting it across channels is always an estimate.

Related reading: Marketing budget: What percentage of revenue makes sense? and Marketing dashboard: Which metrics does management need?

FAQ

What is the difference between CAC and CPA?

CPA (cost per acquisition) measures what a conversion costs in a single ad channel, such as an enquiry or a purchase via Google Ads. CAC, by contrast, spreads all marketing and sales costs across the new customers you actually won. CPA is the right metric for steering individual campaigns; CAC tells you whether customer acquisition pays off as a whole.

How can I reduce my customer acquisition cost?

The biggest lever is usually the close rate: if sales turns more enquiries into deals, CAC falls without cutting the ad budget. A better landing page, switching off campaigns that bring no real deals and bidding that optimises for closed business rather than raw enquiries also help. Referrals and content that ranks organically bring in customers at lower cost too.

What is the CAC payback period?

The CAC payback period is the number of months it takes for a new customer’s contribution margin to recover the cost of acquiring them. You calculate it by dividing CAC by the monthly contribution margin per customer. The metric matters most for cash flow: the longer payback takes, the more capital every bit of growth ties up.

When to hand this over

• You cannot say what a new customer costs you.
• Ad costs, enquiries and orders sit in systems that are not connected.
• You want to allocate budgets by return rather than gut feeling.

We connect ad data, Analytics and your CRM into reporting that shows CAC per channel. Find out more under strategy & analysis or in a free initial consultation.