Customer Acquisition Cost (CAC) measures the average cost incurred to win a new customer. The metric encompasses all marketing and sales expenditures divided by the number of new customers acquired in a given period. CAC is one of the most important control metrics for the economic viability of a business model because it directly reveals whether growth is profitable or burning money.
The decisive question is the ratio of CAC to LTV (Lifetime Value): if acquisition costs permanently exceed the value a customer generates over the entire relationship, the business model is unsustainable. A common rule of thumb is an LTV-to-CAC ratio of at least 3:1. A SaaS company spending 500 euros per new customer while averaging 1,500 euros in revenue over the customer lifetime operates in a healthy range. When CAC rises due to increasing competition, either LTV must increase or acquisition channels must become more efficient.
It is essential to examine CAC on a channel-specific basis. Averages often obscure the fact that some channels are highly profitable while others drag down overall profitability.
