CAC (customer acquisition cost) is the total sales and marketing cost of winning new customers divided by the number of new customers won in the same period. A useful CAC is fully loaded: media, salaries, commissions, tools, agencies, referral fees and discounts all count.
What is customer acquisition cost?
a16z defines CAC as the full cost of acquiring users, stated per user, and warns against leaving out costs such as referral fees, credits or discounts.1Source 1 · Andreessen Horowitz (a16z), 201516 Startup Metricsa16z.com It also distinguishes blended CAC, which includes organic customers, from paid CAC, and notes that investors find paid CAC more important for judging whether paid campaigns are profitable.1Source 1 · Andreessen Horowitz (a16z), 201516 Startup Metricsa16z.com
CAC=(Marketing costs + Sales costs) ÷ New customers acquired
- Marketing costs
- Media, content, events, tools, agencies, marketing payroll
- Sales costs
- Sales payroll, commissions, sales tools
- New customers
- First-time paying customers in the same (or lagged) period
Worked example: blended vs paid CAC
| Cost line (quarter) | Amount |
|---|---|
| Paid media | $120,000 |
| Content, events, agencies | $60,000 |
| Marketing payroll | $120,000 |
| Sales payroll + commissions | $300,000 |
| Sales & marketing tools | $30,000 |
| Total | $630,000 |
| New customers (all channels) | 70 |
| Blended CAC | $9,000 |
Why does CAC matter?
David Skok’s SaaS model is built on recovering CAC: he notes the best SaaS businesses recover it in 5–7 months and keep LTV above 3× CAC.2Source 2 · David Skok, For EntrepreneursSaaS Metrics 2.0 – A Guide to Measuring and Improving What Mattersforentrepreneurs.com Rising CAC is normal as you exhaust the cheapest audiences, and a16z notes acquisition costs typically go up as you try to reach a larger audience.1Source 1 · Andreessen Horowitz (a16z), 201516 Startup Metricsa16z.com What matters is whether CAC payback and LTV:CAC stay healthy as it rises.
Common mistakes
- Media-only CAC presented as “CAC.” Label it paid media CAC.
- Counting signups or trials instead of paying customers.
- No lag for long sales cycles. Divide last quarter’s spend by this quarter’s customers when deals take months.
- Including expansion revenue costs (account management) in new-customer CAC.
How to track CAC in Kimo
Kimo combines spend from ad platforms such as Google Ads and Meta, payroll and vendor costs from QuickBooks or Xero, and new customers from HubSpot, Salesforce or Stripe. Blended and paid CAC become two named measures, shown by channel in the Command center and by quarter in the revenue view.
Frequently asked questions
Should salaries be included in CAC?
What is the difference between CAC and CPA?
How often should CAC be calculated?
Sources
2 references- 16 Startup Metrics (opens in a new tab)Andreessen Horowitz (a16z)2015a16z.com
CAC as full cost per user; blended vs paid CAC; costs rise with scale.
- SaaS Metrics 2.0 – A Guide to Measuring and Improving What Matters (opens in a new tab)David Skok, For Entrepreneursforentrepreneurs.com
Recovering CAC in 5–7 months; LTV above 3× CAC.
External sources were accessed at the time of writing. Kimo product details, customers and figures in examples are illustrative unless a source is cited.
