What is Customer Acquisition Cost (CAC)?
Customer Acquisition Cost (CAC) is the total fully-loaded cost of acquiring a new customer in a given period. The formula: CAC = (Total Sales + Marketing Spend) / New Customers Acquired. Best-practice CAC includes salaries, technology costs, content production, and overhead allocation — not just media spend. Blended CAC averages across all channels; channel-specific CAC isolates by source. Modern marketing constantly monitors CAC by channel, segment, and campaign. CAC has risen materially over the past decade — Facebook CPMs are 5x 2015 levels, Google Ads cost-per-click has roughly doubled — making CAC management central to growth strategy. The LTV/CAC ratio (lifetime value divided by acquisition cost) is the dominant unit-economics metric.
How Customer Acquisition Cost (CAC) actually works
The framework breaks down into the following moving parts. Knowing what each piece is — and what it is not — is what separates a B-grade answer from an A-grade answer in a written assignment.
- CAC = Total S&M Spend / New Customers Acquired
- Fully-loaded includes salaries, tech, content, overhead
- Channel-level CAC for optimization
- Blended CAC for overall efficiency
- LTV/CAC ratio target: 3:1+
A worked example: Casper mattresses
Casper's CAC was famously high — reportedly $300+ per customer in its growth years, against a one-time average revenue of $850. The firm spent heavily on Facebook ads, podcast sponsorships, and content marketing. The math worked only if customers returned (mattress, sheets, pillows, frames) over time. As CAC continued rising and repeat purchase fell short of model assumptions, Casper's losses widened — IPO at $1.4B in 2020 then de-listed at $300M in 2022 after sustained losses. The case is now a textbook warning about modeling DTC unit economics with optimistic assumptions: CAC is real and unforgiving even when LTV projections are uncertain.
Don't lose marks for these
- Calculating CAC excluding salaries and tech
- Optimistic LTV assumptions
- Ignoring CAC inflation over time
How to use this on the exam
Score-maximizing moves
- Show fully-loaded calculation
- Compare blended vs channel-specific
- Use LTV/CAC ratio as decision metric
When to use Customer Acquisition Cost (CAC) (and when not to)
Use Customer Acquisition Cost (CAC) when your assignment asks you to analyze, structure, or recommend — and when you have at least two data points to populate every cell of the framework. Skip it when the question is asking for a numerical answer or a single recommendation, since Customer Acquisition Cost (CAC) is a structuring tool, not a calculator.