Customer Acquisition Cost

Customer Acquisition Cost (CAC) is the total expense required to acquire one new paying customer. It is the foundational unit economics metric for any growth-stage business.

Formula: CAC = Total acquisition spend ÷ Number of new customers acquired

If you spent $50,000 on paid ads last month and acquired 1,000 new customers, your CAC is $50.

What Counts in CAC?

There are two common ways to calculate CAC:

Blended CAC — total marketing and sales spend (paid ads, agency fees, tools, headcount) divided by all new customers, regardless of channel. This is the truest measure of acquisition efficiency.

Paid CAC — only paid advertising spend divided by new customers attributed to paid. Useful for evaluating ad channel efficiency in isolation, but always lower than blended CAC.

Most D2C brands report paid CAC because it’s easier to calculate from ad platform data, but blended CAC is what investors and operators actually need for unit economics analysis.

CAC and LTV: The Only Ratio That Matters

CAC in isolation is meaningless. A $50 CAC is great if the customer spends $500 over their lifetime, and terrible if they only ever spend $60 once.

The LTV:CAC ratio is the primary health indicator for a D2C business:

• 3:1 or better is generally considered healthy
• Below 1.5:1 means you are likely destroying value with each new customer

Brands with high-repeat-purchase categories (supplements, consumables, subscriptions) can sustain higher CAC. One-time purchase products (most accessories, electronics) need much lower CAC or need to compensate with high margin.

Payback Period

Related to CAC is the payback period: how many months until a customer’s cumulative purchases cover the cost of acquiring them. A 3-month payback period is excellent; 18+ months creates severe cash flow pressure for a growing business.