What is CAC and how is it calculated?

• A. CAC = total marketing expense divided by total customers.
• B. CAC = total sales and marketing expense divided by number of new customers acquired.
• C. CAC = number of new customers acquired divided by total marketing expense.
• D. CAC = revenue per customer.

Answer: (B)

Customer Acquisition Cost (CAC) measures how much a business spends to acquire a single new customer. To calculate it, you take all the costs tied to acquiring customers in a period (usually the total sales and marketing expense) and divide by the number of new customers you gained in that same period. So the formula is CAC = total sales and marketing expense / number of new customers acquired. For example, if you spend $120,000 on sales and marketing in a month and gain 600 new customers, CAC = 120,000 / 600 = $200 per new customer. This metric is useful for judging how efficiently your marketing and sales investments convert into new customers, especially when compared to the value a customer brings over their lifetime. The other options don’t fit: dividing total marketing expense by all customers dilutes the metric, inverting the ratio misstates cost per new customer, and revenue per customer measures income rather than cost.