Customer acquisition cost (CAC): formula, calculator and a worked example

Customer acquisition cost (CAC) is the total sales and marketing cost of winning new customers in a period, divided by the number of new customers won. Spend of $480,000 in a quarter that wins 64 new customers is a CAC of $7,500. The number only means something next to the gross profit those customers bring back, so this page ends with the payback calculation.

The CAC formula

CAC = Sales and marketing spend / New customers won

Blended CAC = Total spend across all channels / Total new customers

What counts as spend. Everything spent to win new customers in the period, fully loaded: paid media, agency fees, marketing and sales salaries, commissions and bonuses, sales and marketing software, events and travel. David Skok's CAC formula takes the whole sales and marketing expense line for the period. Andreessen Horowitz lists leaving out costs "such as referral fees, credits, or discounts" as a common mistake.

What counts as a new customer. A logo that signed its first contract in the period. Renewals, upsells and second contracts with existing accounts are not new customers. If account managers who handle expansion sit in the sales budget, take their cost out of the numerator too.

The short definitions of the sales terms used here are in sales analytics KPI definitions.

CAC calculator

Five inputs in a spreadsheet give CAC and the months it takes to earn it back. Put labels in column A and values in column B:

Gross margin is the same ratio as on the P&L; gross profit margin explains what belongs in cost of goods sold. If each channel is a row instead, with spend in B, customers in C, monthly revenue in D and gross margin in E, CAC is =B2/C2 and payback is =B2/C2/(D2*E2).

A worked example by channel

One quarter, in USD. Each channel's spend is fully loaded: the outbound line includes the sales team's salaries and commissions, the events line includes travel and booth costs.

Each channel's CAC is its spend divided by its customers: 120,000 / 30 = 4,000 for paid search, and 210,000 / 14 = 15,000 for outbound. The blended figure divides the totals: 480,000 / 64 = 7,500.

Outbound costs nearly four times as much per customer as paid search. Whether that is a problem depends on what those customers are worth: if outbound wins larger accounts that stay longer, it can still be the better channel.

The check: blended CAC is a weighted average

Blended CAC is the channel CACs weighted by the customers each channel won:

480,000 / 64 = 7,500, the same blended CAC. The simple average of the four channel CACs is (4,000 + 7,500 + 15,000 + 7,500) / 4 = 8,500, which overstates CAC by $1,000 because it gives outbound's 14 customers the same weight as paid search's 30.

Two totals must also tie out: the 480,000 to sales and marketing expense on the P&L for the quarter (less any cost excluded on purpose, such as account management), and the 64 to new logos in the CRM for the same dates.

Blended vs paid vs fully loaded CAC

Andreessen Horowitz argues that paid CAC matters more to investors than blended CAC, because it "informs whether a company can scale up its user acquisition budget profitably"; blended CAC is flattered by customers who arrived for free. Boards usually want fully loaded blended CAC, because it ties to the P&L. Report both, and say which is which.

CAC payback

CAC payback (months) = CAC / (Monthly revenue per customer × Gross margin %)

In the example the average new customer pays $900 a month at a 75% gross margin, which is $675 a month of gross profit. Payback is 7,500 / 675 = 11.1 months.

Payback uses gross profit, not revenue: on revenue alone the same customer would appear to pay back in 7,500 / 900 = 8.3 months. Skok's SaaS Metrics 2.0 shows profitability turning "anemic if the time to recover CAC extends beyond 12 months", and pairs it with a lifetime value above three times CAC. Both are rules of thumb, not standards; his later definitions note that enterprise businesses with a land-and-expand model can run around 20 months.

The other half of the comparison, lifetime value, is worked in how to calculate LTV.

Where it goes wrong

• Only media spend. Leaving out sales salaries, commissions and tools can leave out most of the cost. Paid search at 4,000 looks cheap until the sales team that closes those leads is added.
• No lag for long sales cycles. With a six-month cycle, this quarter's wins came from spend two quarters ago. Divide lagged spend by wins, or use rolling twelve-month totals for both.
• Upsells counted as new customers. Expansion revenue from existing accounts is not acquisition, and counting it makes CAC look lower than it is.
• A simple average of channel CACs. The average was 8,500 where the true blended CAC is 7,500. Divide total spend by total customers.
• CAC alone. A low CAC that buys customers who churn in six months or buy at thin margins is worse than a high CAC that buys loyal, profitable ones.

CAC for B2B accounts, not only logos

In B2B, one account can be worth a hundred times another, so CAC per logo needs the value of the logos beside it. Split CAC by segment and channel, measure acquisition cost against the first contract only, and treat later expansion as retention, which belongs in customer base KPIs for SaaS sales teams. The lifetime value side of the comparison can be computed from purchase history: see customer lifetime value from the ledger.

Covirage computes revenue, gross margin and retention per customer and cohort from uploaded billing and CRM files, so CAC can be judged against what each cohort actually returned. Its deterministic tools do the arithmetic; the external AI model explains the results. See Covirage for SaaS sales teams to find which accounts and segments return their acquisition cost. To set CAC against what a customer returns, see the LTV to CAC ratio and unit economics, and for where CAC sits among other measures, see KPI examples.