Customer acquisition cost (CAC) is the total amount spent on marketing and sales in a period, divided by the number of new customers acquired in that period.
CAC = Total marketing and sales spend ÷ New customers acquired
If a restaurant spends 20 per customer.
CAC matters because it must be compared to what a customer is worth. If the average customer visits 8 times over two years and spends 176. A 176 in lifetime revenue is excellent — a 8.8× return. A 90 in lifetime revenue (a customer who visits 4 times at $22.50) is marginal.
The LTV:CAC ratio is the key metric. Below 3:1, the business is spending too much to acquire customers relative to their value. Above 5:1, the business may be underinvesting in growth — there are profitable customers it’s not reaching.
CAC varies dramatically by channel. Word-of-mouth referrals have near-zero CAC. Social media ads may run 40 per new customer. A food truck event might cost 16.67 each). Tracking CAC by channel — not just overall — reveals which marketing efforts are worth expanding and which should be cut. See Weekly KPIs and Business Metrics and Developing a Marketing Plan.