SAAS METRICS

Customer Acquisition Cost (CAC)

Understanding how much it costs to acquire a new customer

What is CAC?

Customer Acquisition Cost (CAC) measures the total cost of acquiring a new customer, including all sales and marketing expenses.

It's a fundamental metric for understanding growth efficiency and determining if your business model is sustainable.

The Formula

CAC = Total Sales & Marketing Costs ÷ Number of New Customers

Example: $100,000 in S&M costs ÷ 50 new customers = $2,000 CAC

What's Included in CAC?

  • Sales team salaries and commissions
  • Marketing team salaries
  • Advertising spend (Google Ads, LinkedIn, Meta, etc.)
  • Marketing software and tools (CRM, marketing automation, analytics)
  • Content creation costs
  • Events and conferences
  • Agency and contractor fees

Why It Matters

CAC must be significantly lower than Customer Lifetime Value (LTV) for a business to be viable. The standard benchmark is:

LTV : CAC Ratio should be 3:1 or better

CAC Payback Period

Another critical metric is how long it takes to recover CAC through gross profit from the customer:

CAC Payback = CAC ÷ (Monthly Revenue per Customer × Gross Margin %)

Example: $2,000 CAC ÷ ($200/mo × 75%) = 13.3 months to recover CAC

Best-in-class SaaS companies recover CAC in under 12 months.

Cloud Engineering Connection

While CAC is primarily a sales and marketing metric, cloud engineers impact it indirectly:

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