Customer acquisition cost is everything you spent to win a customer, divided by the number of customers won. Unlike cost per lead, it counts the whole path: media spend, marketing cost, the software that handled the inquiry, and the time spent on quotes that never closed.
Briefly explained
- Total acquisition spend divided by new customers.
- It includes the cost of everything that did not close.
- Repeat work is retention, and does not belong in the divisor.
- It only means something next to lifetime value.
What belongs in the calculation?
More than most reports include.
- Media spend, the obvious part
- Agency or in-house marketing cost, including salaries
- Tools: call tracking, CRM, scheduling, review software
- Sales time spent on quotes that went nowhere
The last two are what separate an honest figure from a flattering one. A business quoting three jobs to win one is paying for all three.
Why is it better than cost per lead?
Because leads are not customers, and the gap between them is where businesses get into trouble.
You can double inquiries and lose money if each one takes three visits to close. Cost per lead will look excellent the whole time. CAC is the number that notices.
How do you calculate it honestly?
- Pick a period long enough to cover your sales cycle. Urgent work closes in hours; a large replacement can take weeks.
- Add every acquisition cost in that period, including the ones that feel fixed.
- Divide by new customers, not by jobs.
- Break it out by source, so channels can be compared on equal terms.
What should you compare it against?
Not another company’s number. Against what a customer is worth to you.
A business that keeps customers for years can afford a CAC that would sink a business selling one job and never seeing them again. See customer lifetime value, which sets the ceiling this number has to sit under.
What do the terms mean?
- CAC: The abbreviation, used interchangeably with cost per acquisition in most conversations.
- CPA: Inside an ad platform this usually means cost per conversion, which is not the same as cost per customer. Ask which is meant.
- New customer: Someone who had never bought from you before.
- Payback period: How long a customer takes to earn back what they cost to acquire.
- LTV:CAC: The ratio of lifetime value to acquisition cost. The headline number, when you have both.
Owner questions
