Customer acquisition cost, usually shortened to CAC, is what a business spends to win one new customer over a period. Customer Acquisition Cost measures how much an organization spends to acquire new customers, and it is the total cost of sales and marketing efforts, as well as property or equipment, needed to convince a customer to buy a product or service (ProductPlan, Glossary, Customer Acquisition Cost).
The first thing to know about it is not the formula. It is that no accounting standard defines this term. CAC is not a caption in Regulation S-X, it is not a Topic in the FASB codification, and no regulator prescribes what belongs in its numerator. Every published version is somebody’s convention, which is why two people can compute CAC for the same business and get different answers without either of them being wrong.
That makes it different in kind from the reported subtotals it sits near, such as the one set out in operating cash flow formula, which a standard requires and defines.
The Simple Formula
The base calculation is a division, and it is the version most dashboards use. Calculate CAC by dividing the total expenses to acquire customers, the cost of sales and marketing, by the total number of customers acquired over a given time (ProductPlan, Glossary, Customer Acquisition Cost).
Written out, the simple method is total marketing campaign costs related to acquisition, divided by total customers acquired (ProductPlan, Glossary, Customer Acquisition Cost).
Note the qualifier inside the numerator: costs related to acquisition. Brand spend that was not aimed at winning new customers is outside it on this definition, and the line between the two is drawn by whoever is doing the counting.
The Complex Formula, and What It Adds
The same source gives a second version that puts back everything the first leaves out. The complex method takes total marketing campaign costs related to acquisition, plus wages associated with marketing and sales, plus the cost of all marketing and sales software, plus any additional professional services used in marketing or sales, such as consultants, plus overhead, and divides that total by total customers acquired (ProductPlan, Glossary, Customer Acquisition Cost).
Five components rather than one. The gap between the two formulas is the whole reason CAC figures are hard to compare across businesses: the simple version counts campaign spend, and the complex version counts the people, the tooling, the outside help and a share of overhead as well.
For a services firm the difference is usually large, because the dominant acquisition cost is salaried time rather than media spend. A firm reporting CAC on the simple formula and benchmarking itself against a figure computed on the complex one is comparing two different numbers.
What CAC Is Read Against
A CAC figure means very little alone, and the standard practice is to set it against the revenue a customer produces over the relationship. Analysing CAC in conjunction with lifetime value, an estimate of how much revenue an account will bring in over its lifetime by continuing to purchase or subscribe for a longer period, or with monthly recurring revenue, the measurement of revenue generation by month, is a common way to discover whether a company is operating efficiently (ProductPlan, Glossary, Customer Acquisition Cost).
The per-customer revenue side of that comparison is set out in average revenue per user, and the return measure it feeds in ROI formula.
Ratios of lifetime value to CAC circulate widely as rules of thumb. Treat them as conventions rather than as findings: they carry no standard behind them, and a ratio computed on the simple formula is not comparable with one computed on the complex formula.
Where the Numbers Actually Come From
CAC is assembled from the ledger rather than reported by it, which is where the practical work sits.
The denominator needs a definition of an acquired customer that holds across periods. A trial that converts later, a customer who churns and returns, and a contract renewal are each countable or not, and the choice has to be the same in every period or the trend is meaningless.
The numerator needs the cost accounts tagged. Wages associated with marketing and sales are rarely in one place, software is spread across subscriptions, and overhead is an allocation rather than a cost. None of that is a bookkeeping question with a right answer; it is a policy the business writes down once and then applies consistently.
Common Questions
Divide the total expenses to acquire customers by the total number of customers acquired over a given time (ProductPlan, Glossary, Customer Acquisition Cost). Which expenses go in the numerator depends on which of the two published formulas is being used, and the complex one adds wages, software, professional services and overhead to campaign costs (ProductPlan, Glossary, Customer Acquisition Cost).
No. It is a management metric assembled from accounting data, and no accounting standard prescribes its components. A CAC figure is only as comparable as the policy behind it, which is why the policy is worth writing down.
The question has no general answer, because the figure is meaningless without the revenue it is set against and without knowing which formula produced it. The comparison that carries information is CAC against lifetime value or monthly recurring revenue (ProductPlan, Glossary, Customer Acquisition Cost), computed on one consistent basis.
Accountably places trained offshore accountants and tax preparers inside US CPA and EA firms, and a firm can put a block of its own management reporting work through a trial task before anything client facing depends on it.
