The formula
CAC = total sales and marketing cost ÷ new customers won.
Include everything you spent to win them: ad spend, tools, agency or freelancer fees, and the pay of people whose job is to sell. If you leave out costs, your CAC looks lower than it is.
A made-up example in rupees
Say an online furniture store spends the following in one month.
- Ads: ₹1,50,000.
- Tools and a part-time designer: ₹30,000.
- New customers won: 60.
CAC = (₹1,50,000 + ₹30,000) ÷ 60 = ₹3,000 for each new customer.
Now check this against what a customer brings. If the average customer gives the store ₹4,500 of profit over their time with it, the store earns more than it spends. If the profit is ₹2,000, it loses money on every new customer. Read LTV to see how to work that out. This is a made-up example.
How CAC works for an Indian business
CAC differs a lot by business. A shop with walk-in buyers wins customers cheaply. A firm selling to other businesses may spend weeks on calls and visits for one order. Work out CAC for each channel, such as Google ads, Instagram, referrals and phone calls. Then you can spend more where it is low and less where it is high.
Some marketers use a rule that a customer should bring in about three times their CAC in profit over their lifetime. Treat that as a rough guide. Your cash needs and margins may call for a different number.
Common mistakes
- Counting only ad spend and leaving out team and tool costs.
- Mixing returning customers with new ones.
- Using one blended CAC and not splitting it by channel.
- Looking at CAC without looking at profit per customer.
- Judging a channel too early, before sales have time to close.
To tie each customer back to the channel that brought them, read about attribution.
Related terms
- CPL: the cost of one lead, before anyone has bought.
- LTV: the profit a customer brings over time.
- ROAS: sales earned per rupee of ad spend.
To bring CAC down while keeping quality, see our performance marketing work.
