What Is CAC and How Do You Calculate It?
CAC stands for customer acquisition cost, the total amount spent to acquire one new paying customer. The formula divides total sales and marketing spend over a period by the number of new customers gained in that same period. A business that spends $10,000 on marketing in a month and gains 50 new customers has a CAC of $200. The calculator above runs this calculation for you.
What Is a Good CAC?
There is no universal good CAC number, since it depends entirely on how much a customer is worth over time. A $200 CAC is excellent for a business whose average customer generates $2,000 in lifetime revenue. It is a serious problem for a business whose average customer only generates $150. CAC only becomes meaningful once it is measured against customer lifetime value, covered in the next section.
LTV to CAC Ratio: The Metric Investors Actually Check
The LTV to CAC ratio compares what a customer is worth over their lifetime against what it cost to acquire them. Divide customer lifetime value by CAC to get this ratio. A ratio of 3 to 1 is widely treated as a healthy target across subscription and SaaS businesses, meaning each customer generates three times what it cost to bring them in. A ratio below 1 to 1 means the business loses money on every customer it acquires. A ratio far above 5 to 1 can actually signal under-investment in growth rather than efficiency.
CAC Payback Period: How Long Until You Recover the Cost
CAC payback period measures how many months it takes for a customer’s revenue to cover the cost of acquiring them, rather than measuring value over their full lifetime. Divide CAC by average monthly revenue per customer to calculate it. A payback period under 12 months is generally considered healthy for subscription businesses, since it keeps cash flow manageable while still investing in growth.
Frequently Asked Questions
How do you calculate CAC?
Divide total sales and marketing spend for a period by the number of new customers acquired in that same period. The calculator above handles this instantly once you enter both figures.
What is a good CAC?
There is no fixed good number. A CAC is only meaningful when compared against customer lifetime value, since the same dollar figure can be excellent for a high-value customer base and unprofitable for a low-value one.
What is a good LTV to CAC ratio?
A ratio of 3 to 1 is the widely cited healthy target, meaning a customer generates three times what it cost to acquire them. Below 1 to 1 means the business loses money on each customer, while far above 5 to 1 can suggest under-investment in growth.
How do you calculate LTV to CAC ratio?
Divide customer lifetime value by CAC. If a customer is worth $1,500 over their lifetime and CAC is $300, the ratio comes out to 5 to 1.
What is CAC payback period?
It is the number of months needed for a customer’s revenue to cover the cost of acquiring them. Divide CAC by average monthly revenue per customer to find it.
Why do investors care more about LTV to CAC ratio than CAC alone?
CAC by itself says nothing about profitability. A low CAC paired with low customer value can still be a weak business, while a higher CAC paired with strong lifetime value and fast payback can be an excellent one. The ratio gives a clearer read on whether growth spending actually pays off.