Which digital marketing metric measures the total cost of acquiring a new customer, including all marketing and sales expenses?

Question

Accepted Answer

Customer acquisition cost (CAC). Customer acquisition cost (CAC) measures the total cost of acquiring a new customer by dividing total marketing and sales expenses by the number of new customers acquired during a specific period. For example, if a company spends $10,000 on marketing in a month and acquires 100 new customers, the CAC is $100. This metric is essential for evaluating marketing efficiency and ensuring sustainable growth.

"Return on investment (ROI)", return on investment (ROI), measures the overall profitability of an investment as a percentage, comparing the gain from the investment to its cost. "Customer lifetime value (CLV)", customer lifetime value (CLV), estimates the total revenue a business can expect from a single customer account over the entire duration of the relationship. "Cost per click (CPC)", cost per click (CPC), measures only the cost of each click on a paid advertisement, which is a component of acquisition cost but not the total.

CAC is often analyzed in relation to CLV. A healthy business model requires that CLV significantly exceeds CAC  -  a common benchmark is a CLV-to-CAC ratio of 3:1 or higher. If it costs $100 to acquire a customer who generates $300 or more in lifetime value, the acquisition is profitable. Tracking CAC by channel helps marketers allocate budgets effectively, investing more in channels with lower acquisition costs and higher-value customers.

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