What each new customer costs you, and how many months they take to pay it back.
Customer acquisition cost (CAC)
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Enter your costs and the number of new customers to see the result.
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Enter your marketing costs, your sales costs and the number of new customers won in the same period. You get your customer acquisition cost (CAC), rounded to the penny, with the workings. If you know them, add the monthly revenue per customer and your gross margin to see how many months it takes to recover that cost, or the customer lifetime value to get the LTV:CAC ratio.
Add up what you spent winning customers in the period: online and offline advertising, events, content, agency fees and marketing tools, and also sales salaries with employer costs, commissions and travel. Leave out what serves existing customers, such as support and retention, and the cost of delivering your product. A CAC that counts only advertising looks lower than it is.
If you're VAT-registered and reclaim the VAT on these costs, enter them excluding VAT. The VAT on entertaining or providing hospitality to people you do business with cannot be reclaimed, so count that cost including VAT. If you're not registered, or you use the Flat Rate Scheme, you cannot reclaim the VAT on your purchases, so enter what you paid including VAT.
The costs and the new customers must cover the same period: a month, a quarter or a year. If your deals close weeks after the first contact, a quarter or a year evens out that lag better than a month.
The payback period divides the CAC by the gross margin a customer brings in each month: it is the number of months before that customer has paid back what they cost. The LTV:CAC ratio compares the CAC with the gross margin a customer brings in over the whole relationship: below 1, each new customer loses you money. Enter the gross margin as a percentage of the selling price, not as a mark-up on cost.
Amounts are rounded to the nearest penny, with halves rounded up. The payback period is rounded to a tenth of a month and the ratio to two decimal places, from the CAC and the margin as displayed, so every line of the workings can be checked by hand.
Acquisition costs = marketing costs + sales costs + other acquisition costs.
CAC = acquisition costs ÷ new customers in the period.
Monthly margin per customer = monthly revenue per customer × gross margin.
Payback period (months) = CAC ÷ monthly margin per customer.
LTV:CAC ratio = customer lifetime value ÷ CAC.
In one quarter a business spends £9,000 on advertising and events and £6,000 on sales salaries and commission. It wins 60 new customers. Its CAC is £15,000.00 ÷ 60 = £250.00, of which £150.00 is marketing. Each customer pays £45.00 a month at a 75% gross margin, a monthly margin of £33.75, so the CAC is recovered in £250.00 ÷ £33.75 = 7.4 months. With a customer lifetime value of £1,000.00, the LTV:CAC ratio is 4.
Everything you spent to win new customers in the period: advertising, events, content, agency fees, marketing tools, sales salaries with employer costs, commissions, travel and CRM software. If someone splits their time between finding new customers and looking after existing ones, count only the share spent on new business.
Without VAT if you're VAT-registered and reclaim it on these purchases, but with VAT for entertaining or hospitality for people you do business with, whose VAT cannot be reclaimed. If you're not registered, or you're on the Flat Rate Scheme, the VAT on your purchases cannot be reclaimed (apart from certain capital assets over £2,000), so the VAT-inclusive amount is your real cost.
Cost per acquisition measures what one action from an advertising campaign costs: a purchase, a sign-up or an enquiry. The CAC divides all your marketing and sales costs, salaries included, by the new customers won in the period. A CPA per lead and a CAC cannot be compared directly, because not every lead becomes a customer.
Yes, for the overall (blended) CAC, which divides all costs by all new customers, whether they came from a campaign, word of mouth or search. To judge one campaign on its own, divide what it cost by the customers it brought in.
There is no official benchmark: a good CAC is one that a customer's margin pays back quickly and many times over. For subscription software, David Skok, author of the guide 'SaaS Metrics 2.0', observes that the best businesses have an LTV:CAC ratio above 3, and calls profitability anaemic when the CAC takes more than 12 months to recover. These are guides for that sector, not rules.
This calculator gives general information, not legal, tax, financial or accounting advice. The result depends on which costs and customers you count: check them with your accountant.
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