What is CAC and why it matters more than you think
And all it takes for a business to utilise it to its best
Imagine you’re running a business, spending money on marketing, sales teams, and ads to bring in customers. But how much are you actually paying to acquire each new customer? Is that cost sustainable? If you’re not tracking this, you might be bleeding money without even realizing it.
This is where Customer Acquisition Cost (CAC) comes in—a crucial metric that tells you exactly how much it costs to gain a new customer. If you get this right, you can optimize spending, scale profitably, and ensure long-term growth. Get it wrong, and you might be overspending or under-investing in customer acquisition.
Let’s break it down so you can ensure your CAC is accurate, useful, and actionable for your business decisions.
How to Calculate CAC the Right Way
The basic formula for CAC is = Total Marketing & Sales Costs / Number of Customers Acquired
But let’s go deeper—many businesses miscalculate CAC by either overlooking certain expenses or including irrelevant costs. Here’s what should (and more importantly shouldn’t) be counted:
✅ Include:
Marketing spend (Ads, SEO, social media, events, etc.)
Salaries of sales & marketing teams
Software costs (CRM, automation tools)
Agency/consulting fees related to customer acquisition
Discounts & promotions offered to acquire new customers
❌ Exclude:
Operational costs unrelated to customer acquisition
Revenue lost due to churn (That’s a retention issue!)
Overhead costs not tied to acquisition efforts
A common mistake is treating all customers the same—in reality, your CAC can vary by channel, customer segment, or time period. Break it down further to get a clearer picture:
📊 Channel-Specific CAC: How much does it cost to acquire customers from Google Ads vs. referrals vs. social media? Some channels might be more cost-efficient than others.
📆 Cohort-Based CAC: Are your acquisition costs rising over time? If so, you may need to rethink your strategy.
How to Use CAC for Smarter Business Decisions
Now that you have an accurate CAC, what do you do with it? CAC is powerful when used alongside other financial metrics to drive smart decisions:
1️⃣ Compare CAC with Customer Lifetime Value (LTV)
The golden rule: Your LTV should be at least 3x your CAC (LTV:CAC ratio of 3:1). If it’s lower, you’re overspending.
If CAC is too high, either reduce acquisition costs or increase retention & upsells to boost LTV.
2️⃣ Evaluate CAC Payback Period
This tells you how long it takes to recover your CAC from a customer’s revenue.
If it takes too long (e.g., 18 months), your business may have cash flow issues.
3️⃣ Optimize Acquisition Channels
If social media leads are converting at a lower CAC than paid ads, shift more budget to social.
Double down on high-converting, cost-efficient channels.
4️⃣ Prioritize High-Value Leads
Not all customers are equal—some are more profitable in the long run.
If CAC for Enterprise Clients is high but their LTV is massive, it’s worth the investment.
If CAC for SMEs is high but LTV is low, you may need to pivot your strategy.
Let us break it down with an example:
Scenario: Qallyqx Management Advisors Private Limited a CRM software startup
Total Monthly Acquisition Costs: Rs.50,000
New Customers Acquired: 50
Detailed Cost Breakdown:
Google Ads: Rs.15,000
Sales Team Salaries: Rs.20,000
Marketing Software: Rs.5,000
Content Marketing: Rs.7,000
Sales Tools & CRM: Rs3,000
CAC Calculation
CAC = Rs.50,000 ÷ 50 Customers
CAC = Rs.1,000 per Customer
LTV Analysis
Assume Monthly Recurring Revenue per Customer: Rs.3,500
Estimated Customer Lifespan: 3 Years (36 months)
Lifetime Value (LTV) = Rs.3,500 * 36 = Rs.126,000
LTV:CAC Ratio = 126:1 (Extremely Healthy!)
Channel-Specific Insights
Google Ads: Rs.750 per customer
Organic Content: Rs.467 per customer
Recommendation: Shift more budget to organic content
Key Takeaways:
The company is spending Rs.1,000 to acquire each customer
Each customer brings in Rs.3,500 monthly
The LTV:CAC ratio is exceptional at 126:1
Organic content is more cost-effective than paid ads
Take Control of Your CAC Today
Understanding your CAC isn’t just a “nice-to-know” metric—it’s a make-or-break factor for business growth. By accurately calculating, analyzing, and optimizing your CAC, you can scale efficiently, maximize profits, and ensure long-term sustainability.
📌 Key Takeaways: ✅ CAC = Total Acquisition Costs / New Customers Acquired
✅ Ensure LTV is at least 3x CAC for profitability
✅ Optimize acquisition channels to lower CAC and improve ROI
✅ Shorten CAC payback period to maintain healthy cash flow
Need help analyzing your CAC and optimizing your growth strategy?
Let’s connect today - ishpreet@qallyqx.com
#GrowWithQallyqx