Customer Acquisition Cost: How to Calculate and Reduce CAC

Working with digital marketing means being surrounded by various analytical metrics. In today’s discussion, we will address Customer Acquisition Cost (CAC).

CAC helps you organize and make better use of your company’s investments—after all, we know that marketing is not cheap.

According to data from the United States Small Business Administration, B2C companies spend an average of 9.6% on marketing, while B2B companies spend 6.9%.

For example, if you are a B2C company with an annual investment of R$500,000, about R$48,000 of that total will go toward marketing. If your company is B2B—with the same annual investment—your marketing budget will be R$34,500.

The question I want to present here is whether you are making good use of that amount. To find the answer, let’s dive into the world of marketing KPIs, specifically CAC.

Let’s go!

What is Customer Acquisition Cost?

To begin, we need to clarify what CAC actually is.

Customer Acquisition Cost is a metric that allows us to understand the outcome of investments in Marketing and Sales.

Over a specific period, we track the sum of these investments and the number of customers acquired.

This way, we can determine the average amount invested to acquire each customer for your brand.

The importance of CAC is directly linked to your company’s financial health.

This metric is crucial for decision-making in both areas mentioned above. Understanding the cost of acquiring a customer also allows for better allocation of investments into actions that yield more effective results.

Example of Customer Acquisition Cost

Nothing helps explain a concept better than a practical example, right?

Let’s look at the (fictional) cosmetics company Natural Beauty, whose mission is to create makeup products using only natural and 100% cruelty-free ingredients.

The company’s marketing strategy focuses on several initiatives, including:

An internal marketing and sales team;
Pay-per-click advertising;
Local TV ads;
Social media campaigns.

To understand how much it costs to acquire new customers, the company began analyzing its fiscal year, which runs from January 1 to December 31.

The analysis process is simple—just consider the total expenses and the number of new customers acquired by December 31. See the table below:

As shown above, Natural Beauty spent an average of R$45 per acquired customer.

That’s a great value, considering that the company’s makeup products range from R$70.00 to R$300.00.

Even the cheapest product costs R$65.90, meaning that even at the minimum purchase, Natural Beauty still has a positive margin of R$20.90.

Example of CAC for a SaaS Company

Now, let’s look at an example closer to our reality: one for the SaaS industry.

SaaS companies sell software as a service—you visit the website, choose a plan that fits your needs, subscribe, and start using it the same day.

These companies have seen significant growth since the 2000s, largely due to the rise of the internet and lower operational costs.

Unlike Natural Beauty, which spends R$45 per customer but still has logistical and operational costs to account for, SaaS companies have lower and more predictable expenses, such as servers, employees, energy, and office space.

As the number of customers increases, these costs don’t suddenly rise.

Let’s break down the CAC of a SaaS company that makes the following investments:

Performance agency: R$5,000 per month;
Content agency: R$3,000 per month;
Total investment in paid media: R$50,000 per month;
Total investment in outbound marketing: R$20,000 per month;
Total customers acquired in the year: 700.

To calculate this SaaS company’s CAC, we need to determine its total marketing investments for the year: adding everything up and multiplying by 12 months, we get R$936,000.

Dividing that amount by 700—the number of customers acquired in the year—we get a CAC of R$1,337.14.

This value is significantly higher than in the previous example, which is expected. The key is ensuring that it remains lower than the company’s average revenue per customer.

To learn more about average revenue per customer and other key metrics, I recommend reading the article below:

➡️ 30 Sales, Marketing, and CS KPIs That Leaders Want to See on Your Dashboard

Example of CAC for a Marketing Agency

Marketing agencies are quite similar to SaaS platforms, even though they don’t offer a digital product.

In reality, what agencies provide is quite similar: a digital service.

This service is still executed within a company, but many agencies operate remotely, with employees spread across various home offices rather than a single physical location.

Their clients also typically sign contracts for a fixed duration—usually six months to a year.

Because of these factors, agencies have more flexibility in their strategies and a higher CAC threshold.

However, they must also properly scale their services to understand their CAC limits.

Let’s consider a mid-range investment:

Content costs for the agency: R$5,000 per month;
Ad expenses: R$3,000 per month;
Outbound advertising expenses: R$500 per month;
Clients acquired per year: 40.

These expenses total R$102,000. Dividing that amount by 40 gives us a CAC of R$2,550.

Is that a high number? It depends. A single one-year contract, even at the simplest level, covers the acquisition cost of the next ten clients.

However, it’s crucial to understand what is being spent and invested to determine whether the CAC is truly viable.

Looking only at contract value, it seems fine. But what about the agency’s operational costs?

Let’s discuss this aspect of CAC further in the article. Let’s keep going:

🤓 Read also: 24 Best Lead Generation Practices for Agencies

How to Calculate CAC?

I hope you didn’t get overwhelmed by all the numbers above.

I promise that calculating CAC is super simple—it’s just the total sum of customer acquisition investments divided by the number of customers acquired.

Before we get to the formula, here’s a step-by-step guide to reaching the final result:

Define the period you want to calculate (month, quarter, year, etc.);
Identify all marketing expenses for the period (paid traffic, organic traffic, traditional marketing, events, etc.);
Identify all sales expenses for the period (team, tools, etc.);
Determine the total number of customers acquired in the period;
Add up the expenses and divide the total by the number of customers acquired;
Once you have the CAC value, cross-check it with other metrics like Average Revenue Per Customer, Lifetime Value, and ROI.

Now that you know what to do, here’s the formula that brings it all together:

For example, if your acquisition investments in a month totaled R$5,000 and you acquired 10 customers in that same period, your CAC would be R$500 (5000/10 = 500).

Great, we have the formula! But what does each component mean?

Let’s break them down!

Marketing Investments

This includes all expenses generated by your marketing department, whether directly related to campaigns or essential for the department’s operations.

Consider the following in your marketing investments:

Team salaries;
Tools used by the department;
Ad spend;
Hiring agencies, consultants, or PR firms;
Event production;
Printing and distributing marketing materials;
Any costs related to promoting your products, services, or brand.

Sales Investments

The sales team also focuses on acquiring new customers. This is also a fundamental part of the CAC calculation.

In fact, if you strictly follow Inbound Marketing, marketing and sales are even in the same department. Everything is part of the Marketing and Sales Funnel.

We have two articles that discuss this further. I’ll leave the link here for future reading:

➞ Everything and More About the Digital Marketing Funnel [Complete Guide]
➞ What is a Sales Funnel? Stages, Methods, and 9 Tools

Therefore, for CAC calculation, you should consider:

Team salaries;
Tools used by the department;
Commission amounts;
Participation in events;
Costs related to transportation, food, and travel,
As well as other expenses related to generating sales or hiring.

New Customers

The last element of the calculation is the number of customers generated during the analysis period.

This includes new customers who completed a purchase or hiring due to investments made in marketing and/or sales.

We should not include investments that are not directly related to customer acquisition, such as product costs, support, administration, and other operational areas.

Tip: It is recommended to calculate and track CAC monthly, considering seasonal variations and continuous monitoring to get an overall view within quarters, semesters, and years.

What is the Difference Between CAC and LTV?

Lifetime Value (LTV) is the metric that reveals, in summary, how much your customer invests in purchases or contracts throughout the period they are consuming from your company.

Its calculation is done using the following formula:

For example, if you work with a recurring service that costs (average ticket) R$100.00 per month (average annual purchases) and your customers, on average, subscribe to this service for 12 months (lifetime cycle), the LTV value will be R$1,200.00.

Therefore, CAC is related to how much your company invests until a sale is completed, while LTV is how much your customer invests during the purchase/subscription period.

To grow profitably, you need to reach the break-even point, which is simply the moment when the investment made by the customer surpasses the cost of acquiring them. Check out the CAC and LTV relationship in the graph below:

What is the Difference Between CAC and CPA?

This is a very common question and is closely related to how you manage your marketing and understand the words “conversion” and “acquisition.”

In an Inbound Marketing strategy, all initial efforts—those at the Top of the Funnel—are related to lead generation.

In this sense, lead generation is a form of acquisition—not of customers, but of contacts and opportunities.

However, CAC is a more general metric that spans from lead generation to contract closure.

Leads that do not complete a sale, therefore, are part of the calculation, but they are not expressed concisely and understandably.

CAC is always a fixed value. Understanding CPA is like looking under the hood of CAC.

This is because CPA is the sum of all efforts directed at lead generation, contacts, opportunities, etc. It simply does not measure final customers.

So, CPA is how much you spend to acquire Top-of-Funnel leads. And how much you spend to move those leads to the next funnel stage, and so on.

The best way to calculate CPA is individually. What was the CPA for this specific action that resulted in generating 300 qualified leads?

This is the kind of question you should ask to understand it.

What is the Ideal CPA?

There is no fixed ideal value for CPA. Suggesting otherwise would be irresponsible, to be honest.

The truth is that CPA is an individual metric, measured campaign by campaign. And of course, company by company.

You may have a very high average ticket that justifies a high CPA, and vice versa.

The truth is that the ideal CPA is one that makes sense for your operating costs and business objectives.

It’s a somewhat abstract answer, but without specialized consulting, it’s the best I can provide.

Always keep an eye on this indicator because it is the main component of CAC, which deals with the customers you acquire.

But let’s talk a bit more about the average ticket below. Stay with me:

What is the Relationship Between CAC and Average Ticket?

CAC and the average ticket are two inseparable metrics. Without knowing your ticket, having the information CAC provides is completely useless.

Just think about it: your CAC is R$ 45. So what? Is that good or bad?

As we’ve seen in some examples throughout the article, this value may be adequate or completely inadequate.

Or it may be good, just as it may be excellent.

Everything depends on your average ticket, that is, how much a customer spends with you on average.

If your average ticket is R$50 and you’re spending R$45 to acquire a new customer, your CAC is very high. Your customer is almost generating a loss for you.

Similarly, if your ticket is R$300, your CAC is reasonable: it is slightly less than one-sixth of what customers spend on your products on average.

Understanding the average ticket is essential for any company. And most of them even have an idea of its value before looking at any results or doing calculations.

But to be sure, it’s good to formalize it. We have an article that discusses this topic in depth. Check it out below:

➞ Average Ticket: 6 Strategies to Increase Your Sales

What is the Relationship Between CAC and ROI?

Another major relationship is between CAC and ROI.

The relationship between these two metrics will indicate your company’s financial health, considering how much it is spending to acquire new customers.

ROI is a very robust metric, with the power to analyze your company’s financial performance as a whole and also in individual actions, such as specific marketing campaigns.

By relating it to CAC, it is possible to understand the impact on the returns generated by the efforts and resources used in acquiring customers.

The best way to relate these two metrics, however, is through individual and specific actions. Analyze campaign by campaign, at the micro level.

This makes it easier to understand the viability of your marketing activities without the need for extensive analysis covering the entire company.

And of course: without the need to look at more complex issues, such as logistics and infrastructure costs, which have their own indicators—including macro ROI itself.

We also have a blog that discusses this topic in more detail. Check it out below:

➞ Marketing ROI: What It Is and How to Maximize Yours

What is the Relationship Between CAC and Churn Rate?

The churn rate is an indicator that shows how many customers are leaving a contract with you.

It is calculated by dividing new customers by the number of customers leaving. If the indicator is negative, you are losing more customers than you are acquiring.

From this, we can already see an opening to include CAC in the analysis. If you are losing more customers than you are gaining and these new customers cost you a lot, your company is either experiencing losses or will soon.

We also have an article that covers the churn rate in much more depth. Access it below:

➞ How to Control Your Company’s Churn Rate – Complete Guide

And since we’re talking about data, are you interested in checking out ours? We conducted an open benchmark at the beginning of the year with this data and many others.

Click on the banner below to access it:

What is the Ideal CAC?

After gathering the information and calculating your current customer acquisition cost, you may be wondering: how do I know if my company’s metric is healthy?

There is no magic number: to determine if your CAC is satisfactory, you need to analyze other metrics within your own company. You must understand how much your customer spends on average on your products or services and assess whether the cost to attract them to purchase is generating profit.

If you work with one-time product sales, such as a physical store or an e-commerce platform, the CAC should be lower than the average ticket spent by your customers. If you work with recurring sales, such as a subscription or membership service, the CAC should be lower than your LTV.

If you want to be guided by your industry, First Page Sage has compiled a report on average CACs by industry. In the table below, you can check the organic and inorganic CAC values. Take a look!

Note: The values are in dollars.

When CAC is Lower than LTV, Average Ticket, or Market Average

This is the ideal scenario, as it represents profitability for your company, investing less than what the customer spends on purchases.

However, this does not mean you can just sit back. Continue monitoring these metrics, study what can be optimized to improve these indicators even further, and explore different investments to attract even more customers.

When CAC is Higher than LTV, Average Ticket, or Market Average

This is the opposite situation and means that your company is losing money! It indicates that, to acquire each customer, you are spending more to convert a sale than the consumer is investing in your products or services. In other words, you are incurring a loss.

This requires stricter investment monitoring and a shift in strategy.

Here, there are three options that can work together: optimize investments, generate more business opportunities, and increase consumer spending with your brand.

How to Reduce Customer Acquisition Cost?

Evaluate all your investments with your company’s marketing and sales departments.

Can they be optimized? Are there costly actions that bring little return? How many customers would need to be generated to improve the CAC rate?

After this analysis, invest in actions that can increase business opportunities, generate leads, and, consequently, boost the number of customers acquired.

Monitor CAC by Marketing Channel

In the practical example given earlier in the article, we calculated CAC in a general way. However, it is essential to analyze CAC for each marketing channel used.

This way, you can determine which channels are performing better, which need improvement, and which are not yielding results.

Monitor your CAC by:

Channel (e.g., paid media);
Subchannel (e.g., Facebook Ads);
Campaign (e.g., contact forms are dead);
Keyword (e.g., form).

Find the “Growth Engine” of Your Strategy

When we talk about finding the “growth engine,” we mean discovering the best and most cost-effective channel for your marketing strategy and optimizing it to the fullest to reduce CAC.

The growth engine will be your main source of results, as you will focus your efforts on it through various tactics, such as:

Content marketing;
Affiliate programs;
Public relations;
Paid traffic.

Invest in Organic Channels

Bet on an Inbound Marketing strategy—the main alternative for generating qualified leads.

Through this type of marketing, which offers useful and relevant content to consumers, you cover all stages of the buying journey, turning visitors into leads ready for your sales team to act upon.

Within Inbound Marketing, we have Content Marketing, a strategy responsible for everything from attracting visitors to converting them into leads, nurturing these contacts, and generating interest in the solution your company offers.

Invest in tools such as:

Blog;
E-books;
Email marketing;
Videos;
Podcast marketing;
Social media.

Attract More Qualified Leads

Attracting more qualified leads means reducing the efforts and, consequently, the costs of your sales team. With more mature leads in the buying process and a better understanding of your solution, your conversion rates improve, and the number of customers increases.

Invest in Conversion Rate Optimization (CRO)

CRO, or Conversion Rate Optimization, is the strategy aimed at improving conversion rates.

CRO uses your existing website structure and incrementally adjusts it to improve conversion rates, increase results, and consequently, boost sales.

How does this relate to CAC?

By increasing the conversion rate of pages without increasing costs, you simply increase the number of visitors who become customers. In other words, more customers with less investment.

Learn more: Website Optimization: Is It Better to Focus on SEO or Conversion?

Reduce Friction with Conversational Marketing

Conversational marketing includes actions and tools related to conversations—such as chatbots and virtual assistants. This is one of the most dynamic and modern ways to generate qualified leads for your business, as it provides more dynamic and personalized contact with first-time visitors to your brand.

Through conversational marketing, you guide the user toward a decision, allowing you to collect more information and qualify them more effectively. This eliminates friction between cold and hot leads, ensuring you focus only on qualified prospects.

Cut Costs by Using Inside Sales

By implementing inside sales—a sales process conducted remotely—you generate results while reducing costs, thereby lowering your CAC.

Think about how much you save on rent for a physical location, transportation, accommodation, and meals.

Invest in Customer Relationships to Reduce Churn

Remember that the customer relationship does not end with the sale.

Maintain a good relationship with users, invest in customer experience, conduct satisfaction surveys, and analyze received feedback.

Learn more: [Complete Guide] How to Succeed in Post-Sales

Now you understand what Customer Acquisition Cost (CAC) is, how to calculate this metric, what actions to take to improve your results, and how to optimize your company’s investments.

Do you still have any questions about customer generation or CAC? Leave your question in the comments! We’ll be happy to help your business grow even more!

If you don’t have any questions and want to learn even more about the metrics surrounding your business, check out our article: 30 Sales, Marketing, and CS KPIs That Leaders Want to See on Your Dashboard!