CAC is the total cost of acquiring one new customer, including marketing, sales, and advertising expenses. Formula: Total Sales & Marketing Spend ÷ Number of New Customers Acquired.
Customer Acquisition Cost is one of the most critical SaaS metrics. It tells you how much you spend to convince one person to become a paying customer. Calculate it: Add all sales and marketing expenses (ads, salaries, tools, events) in a period, divide by new customers acquired in that period. Example: Spent ₹10 lakhs on marketing in Q1, got 100 customers → CAC = ₹10,000 per customer. CAC must be compared with LTV (Lifetime Value). Rule of thumb: LTV should be 3x CAC minimum. If CAC is ₹10K, LTV should be ₹30K+ for healthy business. CAC varies by channel: Organic/SEO (₹500-₹2K), Paid ads (₹5K-₹20K), Enterprise sales (₹50K-₹5L). CAC payback period matters too: How long to recover acquisition cost from customer payments? Best: <6 months. Acceptable: 6-12 months. Danger: >18 months. High CAC kills startups—you run out of money before customers become profitable. Optimize CAC through: better targeting, conversion rate optimization, referral programs, content marketing, product-led growth.
CAC = (Total Sales + Marketing Spend) ÷ Number of New CustomersReduced CAC from $233 to $70 through referral program ("Get 500MB free for every friend"). Viral growth replaced paid ads.
Spends ₹20L/month on ads + ₹15L on sales team (2 people) = ₹35L. Acquires 50 customers/month → CAC = ₹70,000. If LTV is ₹3L, healthy 4.3x ratio.
CAC was ₹15K, LTV only ₹10K (negative unit economics). Every customer LOST ₹5K. Burned through funding, shut down despite growth.
CAC > LTV means you lose money on every customer. Unsustainable. CAC determines how fast you can grow—lower CAC = more customers with same budget. Investors scrutinize CAC:LTV ratio heavily. Below 3:1 is red flag.
CAC should be 3x less than LTV. If your annual subscription is ₹12K and customers stay 3 years, LTV = ₹36K. CAC should be ₹12K or less.
If founder is doing sales/marketing, yes include their opportunity cost. If bootstrapped and taking no salary, you can exclude but note this in reporting.
Improve conversion rates, add referral programs, focus on organic/SEO, optimize ad targeting, implement product-led growth, increase word-of-mouth.
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