CAC is only meaningful next to what a customer is worth. On a first-order basis, the maximum CAC you can afford is your contribution per order; with proven repeat purchases you can stretch towards contribution lifetime value.
Be explicit about which CAC you mean. Paid CAC divides paid spend by customers acquired through paid channels; blended CAC divides all marketing spend by all new customers.
Formula
CAC = Marketing spend ÷ New customers acquired
Example
₹9 lakh of spend producing 1,000 new customers is a CAC of ₹900.
Model contribution lifetime value from repeat behaviour, then see your LTV:CAC ratio and payback month.
Related terms
- Blended CACBlended CAC is total marketing spend divided by all new customers, whatever channel they came from.
- LTV (customer lifetime value)LTV is the total value a customer generates over their relationship with a business, best measured in contribution rather than revenue.
- LTV:CAC ratioThe LTV:CAC ratio compares the lifetime value of a customer with the cost of acquiring them.
- CAC payback periodCAC payback period is the number of months it takes for the contribution from a customer to repay the cost of acquiring them.
Where this comes up
ROAS is not a business metricReturn on ad spend tells you how the platform sees your campaigns. Contribution margin tells you whether the business is better off. Here is how to run paid media on the second.Part of the growth marketing glossary by Shiva Sharma.