Customer acquisition cost (CAC)

Definition

The fully loaded sales and marketing spend it takes to win one new customer.

Why It Matters

Set against what a customer is worth over their life, it tells you whether growth is profitable or simply bought at a loss. A rising cost per customer is an engine breaking down quietly. Look for how long the spend takes to pay itself back as well as the ratio. A business that recovers its acquisition cost in three months can grow from its own cash, while one that takes eighteen has to borrow to grow. Ask what the number would be if the owner's own unpaid selling time were priced in.

In numbers: A shop spending $40k on ads and sales in a quarter to land 200 customers has a $200 customer acquisition cost.