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Every customer comes with a cost. But is yours too high?
All companies are fuelled by the goal of growing their customer base. It’s what drives boardroom conversations, fuels funding rounds, and justifies marketing budgets. But behind every new customer lies an often overlooked reality: the cost of acquiring them.
At first glance, it sounds like business as usual. Of course, it costs money to acquire customers. But if left unchecked, acquiring every new customer could eat away at your profitability more than ever before.
If you’re paying more to acquire customers than they’re worth, every decision you make about marketing, onboarding, and product strategy gets harder. Cash gets tighter, growth slows, and the leadership starts asking uncomfortable questions.
But here’s the good news: customer acquisition cost is controllable. It’s not some random, runaway cost. With the right strategy, you can lower it. You can acquire better customers for less, increase retention, and shorten payback periods.
In this guide, you’ll learn how to calculate customer acquisition cost, why it matters, and powerful strategies to bring it down—fast.
What is the customer acquisition cost (CAC)?
Customer acquisition cost (CAC) is the total cost spent on marketing, sales, and onboarding to acquire a new paying customer. It’s calculated by dividing total acquisition costs by the number of customers acquired within a set period, offering insight into how efficiently a company turns prospects into paying customers.
In simple terms, CAC tells you how much you’re paying to get one new customer. CAC includes costs like LinkedIn ads, sales team salaries, onboarding software, and customer support. Every effort that helps turn a lead into a paying customer gets factored into CAC.
Why does CAC matter so much?
High CAC means you’re paying too much to acquire new customers. When you spend $500 to bring in a customer who only pays you $300, you have a problem. The lower your CAC, the more profitable your company becomes. By keeping your CAC under control, you can grow faster, increase margins, and reinvest in product development.
1. CAC impacts profitability
Profitability is the bedrock of every SaaS company, and CAC directly affects how much profit a business can generate. When CAC is too high relative to the revenue brought in by a customer, profitability suffers.
And business growth becomes unsustainable if your Customer Lifetime Value (LTV)—the amount of money your customer is expected to spend with your business as long as they use your product or service—isn’t outpacing your CAC.
This is why investors and executives keep a close eye on the LTV-to-CAC ratio.
The LTV-to-CAC ratio measures the relationship between the revenue a customer generates over their lifetime and the cost incurred to acquire them. For a healthy SaaS business, the industry standard is a 3:1 ratio, according to SaaS experts. This means that for every $1 you spend to acquire a customer, you should earn $3 in revenue.
2. CAC is essential in budgeting and resource allocation
Every budget decision a SaaS company makes should be driven by CAC. If you know how much it costs to acquire customers from different channels, you can optimize where you allocate your budget. This ensures you’re spending on the most efficient, high-impact strategies.
Here’s how you leverage CAC in budgeting:
Channel assessment: Identify which acquisition channels (like paid ads, SEO, or outbound sales) have the lowest CAC.
Budget shifts: Increase the budget for channels with the lowest CAC and reduce budget allocation for higher-cost channels.
Regular audits: Assess CAC on a quarterly basis to spot trends, seasonal fluctuations, and emerging opportunities.

For example, if you notice that paid ads on Google have a CAC of $400 while SEO content marketing has a CAC of $150, the logical choice is to shift budget from paid ads to SEO. The goal is to double down on low-cost acquisition methods while reducing reliance on costly methods.