Understanding Customer Acquisition Cost

CAC = total sales and marketing spend in a period ÷ number of new customers acquired in that period. If you spent £10,000 on marketing and sales in March and acquired 50 new customers, your CAC is £200. This sounds simple but has important implementation questions: what counts as 'sales and marketing spend' (just ad spend, or also salaries, agency fees, and software?), and what counts as a 'new customer' (first-ever purchase, or a returning customer from more than 12 months ago?). AskBiz uses fully-loaded CAC (all sales and marketing costs) and defines new customers as those making their first-ever purchase.

Blended CAC (total spend ÷ total new customers) masks very different economics across channels. Go to Finance → Acquisition Cost → By Channel to see CAC broken down by paid social, paid search, organic, email, referral, and direct. A channel with CAC of £50 and another with £300 need very different budgeting decisions — even if they acquire the same volume of customers. Pair CAC by channel with LTV by acquisition channel (available in the Customer Intelligence view) — the channel with the highest CAC may also produce the highest-LTV customers, making it the most profitable channel despite the higher cost.

CAC sustainability is measured by the LTV:CAC ratio. A ratio of 3:1 or above is the standard benchmark for a sustainable acquisition model — you earn £3 in lifetime value for every £1 spent acquiring a customer. A ratio below 2:1 is a warning: you are either spending too much to acquire customers or your retention is too weak to generate sufficient LTV. A ratio above 5:1 may indicate underinvestment in acquisition — you could be growing faster than you are by increasing spend in high-LTV channels.

LTV:CAC ratio tells you the long-run return on acquisition investment. CAC payback period tells you how quickly you recover it: CAC payback (months) = CAC ÷ (average monthly revenue per customer × gross margin %). If CAC is £200, average monthly revenue per customer is £50, and gross margin is 40%, payback period = £200 ÷ (£50 × 0.4) = 10 months. This matters for cash flow — if your payback period is 10 months, you need to fund 10 months of customer costs before each acquired customer becomes profitable. High payback periods require more working capital to sustain growth.