What is CAC? Customer Acquisition Cost in SaaS

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What is Customer Acquisition Cost (CAC)?

Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer. This includes all sales and marketing expenses — ad spend, salaries, software tools, and campaign costs — divided by the number of new customers acquired in a given time period.

CAC helps SaaS businesses understand how much they need to invest to bring in each new customer.

Why CAC is important for SaaS growth

How to calculate CAC

CAC = Total Sales & Marketing Spend / Number of New Customers Acquired

For example, if you spend $100,000 in a quarter and acquire 200 new customers, your CAC is $500.

Is your CAC too high?

CAC varies by segment, but here are some rules of thumb:

  • SMB SaaS: CAC often ranges from $300–$1,000
  • Mid-market: $1,000–$5,000+
  • Enterprise: $10,000+

High CAC isn't necessarily bad — if your customer stays long enough and generates enough value.

What is LTV/CAC ratio and why it matters

The LTV/CAC ratio compares your Customer Lifetime Value (LTV) to the cost of acquiring that customer (CAC). It’s one of the most critical SaaS health metrics.

LTV/CAC = Lifetime Value / Customer Acquisition Cost

A healthy LTV/CAC ratio is typically around 3:1 — meaning you make $3 for every $1 spent acquiring a customer. If the ratio is below 1, you're losing money.

Use this ratio to evaluate the sustainability of your growth strategy. Fast-growing SaaS companies may operate at a lower ratio early on but should improve over time.

How to lower CAC and improve efficiency

  • Improve conversion rates: Optimize your funnel to convert more leads into paying customers
  • Refine targeting: Focus on segments with the highest ROI and shortest sales cycles
  • Invest in product-led growth: Let your product do the selling via trials or freemium
  • Retain customers longer: A longer lifespan increases LTV and makes CAC pay off

FAQ

What expenses are included in CAC?

All sales and marketing expenses — ad spend, salaries, software, creative, events, and overheads tied to acquisition.

How often should I calculate CAC?

Track it monthly or quarterly to catch efficiency trends. Combine it with LTV for deeper insight.

What’s a good LTV/CAC ratio?

3:1 is a good rule of thumb. Above 5:1 may mean you're under-investing in growth. Below 1:1 means you're losing money.

Does CAC include existing customer retention costs?

No — CAC only includes costs for acquiring new customers, not servicing or retaining existing ones.