Customer acquisition cost (CAC)

Customer acquisition cost (CAC) is the total amount of money that a company spends to acquire a new customer. It is calculated by dividing the total cost of sales and marketing by the number of new customers acquired.

CAC is an important business metric because it helps companies understand how much it costs to acquire new customers. This information can be used to make decisions about how to allocate marketing and sales resources, and to set prices for products and services.

There are a number of factors that can affect CAC, including:

  • The company’s industry. Some industries are more competitive than others, which can lead to higher CAC.
  • The company’s target market. The size and sophistication of the target market can also affect CAC.
  • The company’s marketing and sales strategy. The effectiveness of the company’s marketing and sales strategy can also affect CAC.

To lower CAC, companies often focus on:

  • Targeting the right market. By targeting a smaller, more specific market, companies can reduce the amount of money they spend on marketing and sales.
  • Creating a strong brand. A strong brand can help companies to attract new customers without having to spend as much money on marketing.
  • Using effective marketing and sales strategies. Companies can use a variety of marketing and sales strategies to reach their target market and acquire new customers.
  • Tracking CAC and make adjustments as needed. Companies should track their CAC on a regular basis and make adjustments to their marketing and sales strategies as needed.

From a compensation perspective, leaders can pull different compensation levers in order to influence CAC. 

For instance, you could implement decelerators (lower commission rates) for deals that require significant resources to onboard. This will, in turn, encourage your reps to focus on your ideal customer profiles, who often have shorter onboarding periods and cost less to acquire and retain. 

By understanding CAC and taking steps to lower it, companies can improve their profitability and growth.

Check out our webinar and recap: CAC and Comp: a relationship worth exploring: Webinar recap, for more information. 

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