Client Acquisition Cost (CAC) is the amount of money spent to gain a new customer. While the cost can vary by business and by sector, the method of calculation remains the same.
CAC is calculated by taking the cost of marketing and the cost of sales, and then dividing it by the total number of acquired clients over a set time period. The time period for calculation is generally a month, quarter or year.
CAC is important to calculate as it gives you a good understanding of how financially efficient your current customer conversion process is. A significant metric to determine efficiency is how your CAC relates to your customer lifetime value (CLV).
CLV is the amount of revenue a client is predicted to generate during their time as a customer to the company. Typically, you would aim to have the CLV to CAC be a ratio of 3:1, anything higher or lower would indicate changes may need to be made.