# What is CAC – Customer Acquisition Cost?

What is CAC – Customer Acquisition Cost? Total marketing and sales spend divided by the number of new customers. Always compare to LTV.

## How it works in practice

Different from CPA! CAC includes all marketing costs — including team headcount, agency fees, and tools. Many businesses calculate CPA and not CAC — then get surprised they aren't profitable.

## Related metrics

- LTV — the inseparable pair: LTV/CAC is the most important ratio
- CPA — CPA is part of CAC, not the same thing
- Churn Rate — high churn lowers LTV
- Retention — improved retention lowers effective CAC

## Common misconception

Calculating CAC from paid ads alone. In practice: marketing manager salary, agency, tools — all count. True CAC is usually double what people think.

## How to fix it

Did CAC rise? (1) check a specific channel that got more expensive, (2) check demand in Google Trends, (3) consider organic channels.

## Real-world example

A supplements store: paid-ad CAC was $27. A referral program dropped CAC to $16. Referred customers bought again 40% more often.

## Where to start

In the early stage, CAC matters less than PMF. After proving people buy and return — CAC becomes metric #1.

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Category: Marketing · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/cac-customer-acquisition-cost