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Understanding what is customer acquisition cost (CAC) is essential for making your business profitable. CAC measures the total cost of acquiring a new customer, including marketing, sales, and advertising expenses. These costs can vary hugely across industries. According to First Page Sage, the average CAC is:
- $239 in SaaS
- $784 in fintech
- $86 in eCommerce
Lowering CAC is an essential goal for increasing profitability, and platforms like Trengo help by streamlining communication, automating tasks, and using AI to make customer acquisition more efficient. In this blog, we’ll explore how to calculate CAC and ways you can reduce it.
What does customer acquisition cost (CAC) mean?
Definition of customer acquisition cost
Customer acquisition cost (CAC) is the total cost a business spends to acquire a new customer. This includes costs such as:
- Marketing expenses
- Sales efforts
- Staff salaries
- Advertising
- Tools or resources needed to attract and convert potential leads
Essentially, CAC measures how much you need to invest to turn a prospect into a paying customer.
CAC is an essential metric for understanding the profitability of your marketing and sales strategies. By comparing CAC to metrics like Customer Lifetime Value (CLV) or Monthly Recurring Revenue (MRR), you can discover whether your acquisition approach is delivering a good return on investment (ROI).
What is the average cost of customer acquisition?
The average cost of customer acquisition varies a lot from industry to industry. For example, data from First Page Sage :
- B2B SaaS businesses see an average combined CAC of $239, with lower costs driven by freemium models and free trials.
- Financial services face higher CACs, averaging $784, often due to greater competition and complex acquisition processes.
- Construction has one of the lowest average CACs at $281, often using strategic partnerships and local SEO strategies.
- Education has a high average CAC of $1,143, influenced by the prestige-focused nature of the industry.
- eCommerce businesses enjoy some of the lowest costs, with an average CAC of $86, thanks to effective online campaigns and platforms like Amazon.
It's also important to differentiate between organic and inorganic CAC:
- Organic CAC includes strategies like SEO and organic social media.
- Inorganic CAC covers paid channels like PPC and paid social ads.
For example, organic CAC averages $345 in the cybersecurity industry, while inorganic CAC is slightly higher at $512.
Knowing these benchmarks helps you to understand how your acquisition costs compare to industry standards. With solutions like Trengo, you can lower your CAC by automating customer interactions, centralising communication, and enhancing customer engagement through AI-driven insights.
Why is customer acquisition cost important?
CAC is a key metric for understanding the profitability of your business model and can be used to help you grow sustainably. Your CAC is a direct reflection of how efficiently your company turns prospects into paying customers. Knowing what customer acquisition costs allow you to understand how effective your sales and marketing strategies are.
Here’s why CAC matters:
- Profitability check: If your CAC is higher than your Customer Lifetime Value (CLV), your business model is probably not sustainable. Ideally, the revenue a customer brings in over time should far exceed the cost of acquiring them.
- Resource allocation: Understanding where your money is going helps you focus on the most effective acquisition channels. For example, if SEO campaigns consistently yield lower CACs than paid ads, it might make sense to invest more in your SEO strategies.
- Strategic decision-making: CAC can help guide all kinds of decision-making in your business, from pricing models to marketing investments. Lowering CAC will often mean greater profit margins, while a rising CAC could signal a need for strategic changes.
- Forecasting growth: When CAC is predictable, it becomes easier to plan for future growth. You can better forecast budgets and understand how much investment is required to hit your acquisition targets.
How to calculate customer acquisition cost
Knowing how to calculate customer acquisition cost is important for gauging how well your sales and marketing strategies are working. It helps you see how much you’re spending to bring in new customers and identify where you can optimise for better results.
What is the formula for customer acquisition cost?
The formula for calculating CAC is simple:
Customer Acquisition Cost (CAC) = Number of New Customers Acquired / Total Sales and Marketing Costs
Here’s how it works:
- Total sales and marketing costs: include everything you invest to attract and convert customers. This can be advertising spend, salaries of your sales and marketing teams, software subscriptions, etc.
- Number of new customers acquired: This is the total number of customers gained within a specific period.
For example, if you spend $10,000 on sales and marketing in one quarter and acquire 100 new customers, your CAC would be:
100 / 10,000 = 100
This means it costs you $100 to acquire each new customer.
Customer acquisition channels to grow your business
Here’s a breakdown of the most effective channels to help you grow your customer base.
1. Content marketing
Content marketing is a great way to attract and engage potential customers, especially during the awareness stage. This could include:
- Publishing helpful blogs on your website
- Offering downloadable guides or templates
- Hosting webinars to share industry insights
- Creating educational videos or podcasts
The key is to focus on creating valuable, relevant content that addresses your audience’s questions or pain points. Optimising this content with SEO strategies ensures it reaches the right people. At this stage, avoid hard-selling, your goal is to build trust and establish your brand as a helpful resource.
2. Paid advertising (Display, video, audio)
Paid advertising helps keep your brand top-of-mind during the consideration stage. This includes:
- Display ads across relevant websites
- Video ads on platforms like YouTube
- Audio ads on podcasts or music streaming services
- Search engine marketing (SEM) for targeted visibility
You can also use paid ads to promote special offers or limited-time discounts to push customers to make a decision to purchase.
3. Email marketing
Email is one of the most direct and effective channels for nurturing leads who are close to converting. You can optimise your email making by:
- Creating a mailing list for potential customers who’ve shown interest and sending them follow up emails
- Sending personalised content, product updates, or helpful tips
- Highlight exclusive offers or discounts to encourage conversion
Email marketing is all about providing consistent value and staying top of mind without overwhelming your audience.
How to lower your customer acquisition costs
Reducing CAC increases your profitability and sustains your business growth. But what is the best way to reduce it? There are several tried and tested strategies you can use to optimise your acquisition process and get more value from your marketing efforts.
Here are four of them:
1. Optimise your marketing strategies
Not all marketing channels deliver the same results. Focus on those that offer the highest ROI by:
- Analysing campaign performance to identify which channels bring in the most leads at the lowest cost.
- Investing in organic strategies like SEO and content marketing, which may take time but provide long-term, sustainable results.
- Using paid campaigns strategically, ensuring you target the right audience with the right message.
2. Improve lead qualification
Spending time and resources on unqualified leads increases CAC. To avoid this:
- Use clear, targeted messaging to attract the right audience from the start.
- Implement lead scoring systems to prioritise prospects most likely to convert.
- Optimise landing pages to clearly communicate your value and encourage qualified sign-ups.
3. Focus on customer retention
The cost of acquiring new customers is five times higher than the cost of retaining existing customers. Happy customers can also become brand advocates, reducing future acquisition costs. Strategies to retain your current customers can include:
- Offering loyalty programs or referral incentives.
- Providing excellent post-purchase support to encourage repeat business.
- Gathering feedback to continuously improve customer experience.
4. Automate and streamline communication
The faster and more efficiently you engage with leads, the lower your CAC will often become. This is where Trengo makes a real difference:
- Centralise communication from channels like email, social media, and WhatsApp, so you can manage all customer interactions from one place.
- Automate responses with Trengo’s AI-powered tools, reducing manual effort and ensuring instant engagement.
- Use smart workflows to route conversations to the right team members, ensuring quicker responses and improved customer satisfaction.
What expenses are included in customer acquisition costs?
To accurately calculate CAC, you need first to understand what is included in customer acquisition costs. These costs go beyond just ad spend—they encompass all the resources invested in attracting and converting new customers. Here's a breakdown of some of the costs you should consider:
- Marketing expenses: this includes paid advertising, SEO, content creation, social media campaigns, and marketing software subscriptions.
- Sales expenses: salaries, commissions, and bonuses for your sales team, as well as the tools and resources they use to close deals.
- Technology costs: Investments in CRM systems, marketing automation tools, and analytics platforms that support acquisition efforts.
- Creative costs: fees for design, video production, and copywriting to create engaging marketing materials.
- Overhead costs: a portion of office expenses, utilities, and operational costs related to sales and marketing efforts.
How to develop a customer acquisition strategy
Creating an effective customer acquisition strategy will help you attract and convert potential customers while decreasing costs. A good strategy will help you reach the right audience, ensure you use the best channels, and deliver a compelling message. Here’s how to develop a strategy that drives sustainable growth.
1. Identify your target audience
Understanding who your ideal customers are is the foundation of any acquisition strategy. Start by:
- Creating detailed buyer personas based on demographics, behaviours, and interests.
- Analysing current customers to identify common traits and preferences.
- Researching industry trends to spot emerging customer needs.
The more specific you are, the more effectively you can tailor your messaging and outreach.
2. Choose the proper acquisition channels
Not every channel will be effective for every business. Choose the ones that align best with your target audience and goals:
- Organic channels: SEO, content marketing, and social media to build long-term visibility.
- Paid channels: PPC, paid social ads, and display advertising for immediate reach.
- Referral and partnership programs: Leverage existing customers and industry partnerships to generate new leads.
3. Craft a compelling value proposition
Your value proposition is what sets you apart from competitors. It should clearly explain:
- What problem do you solve for customers?
- Why is your solution better than others in the market?
- How it benefits the customer—focusing on outcomes like time saved or improved results.
This message should be consistent across all marketing and sales materials.
4. Align your sales and marketing teams
Customer acquisition is most effective when sales and marketing work together. Here's how you can help align your teams:
- Defining shared goals and metrics for lead generation and conversion.
- Establishing clear handover processes so leads are properly nurtured.
- Regularly reviewing results together to identify areas for improvement.
5. Measure and optimise your strategy
An acquisition strategy isn’t something you just set and forget. It needs ongoing evaluation to stay optimised. Focus on:
- Tracking key metrics like CAC, conversion rates, and customer lifetime value.
- Running A/B tests to identify which messages, channels, or campaigns perform best.
- Gathering feedback from prospects and customers to understand pain points.
An example of how customer acquisition cost works
Let’s take a closer look at how a SaaS company might calculate its customer acquisition cost (CAC).
Over a three-month period, the company invests in several marketing and sales activities:
- $30,000 on paid advertising (Google Ads, social media campaigns)
- $10,000 on content marketing (blogs, downloadable resources, SEO strategies)
- $15,000 for the salaries and commissions of the sales team
- $5,000 on marketing tools and CRM software
This brings the total acquisition cost to $60,000. During this time, the business acquired 200 new customers through these combined efforts.
CAC calculation:
60,000 / 200 = 300
So, the customer acquisition cost for this period is $300. This means the company spends $300 to acquire each new customer.
Mastering customer acquisition cost for sustainable growth
Knowing what is customer acquisition cost is and how to calculate customer acquisition cost will help you drive more sustainable growth. Businesses can lower expenses and boost profitability by understanding what is included in customer acquisition costs and optimising strategies.
With Trengo’s AI-driven automation and centralised communication, reducing CAC becomes simpler—helping you acquire more customers faster and cost-effectively.
