Question 1

What is customer acquisition cost?

Accepted Answer

The total sales and marketing cost required to acquire one new customer, calculated by dividing all acquisition spending over a period by the number of new customers gained.

Question 2

What is the CAC formula?

Accepted Answer

CAC equals total sales and marketing costs divided by the number of new customers acquired in the same period.

Question 3

What should be included in CAC?

Accepted Answer

All acquisition costs: advertising, sales and marketing salaries, tools and software, agency fees, and creative costs, not just advertising spend.

Question 4

Why is CAC meaningless on its own?

Accepted Answer

Because a CAC number only makes sense when compared to what a customer is worth. A CAC of 200 is excellent if lifetime value is 1,000 but disastrous if it is 150.

Question 5

What is the LTV:CAC ratio?

Accepted Answer

The ratio of customer lifetime value to acquisition cost. It shows how much value you get back for every unit of money spent acquiring a customer.

Question 6

What is a healthy LTV:CAC ratio?

Accepted Answer

Around 3:1 is a commonly cited healthy benchmark, meaning a customer is worth about three times what it costs to acquire them.

Question 7

Can an LTV:CAC ratio be too high?

Accepted Answer

Yes. A very high ratio, like 8:1, often signals under-investment in growth, meaning you could profitably acquire more customers by spending more on acquisition.

Question 8

What is the CAC payback period?

Accepted Answer

The number of months of revenue or profit from a customer needed to earn back the cost of acquiring them. Shorter payback periods ease cash flow.

Question 9

How can product managers improve CAC economics?

Accepted Answer

By improving activation and onboarding, building referrals and virality, raising retention and lifetime value, and reducing friction to purchase.

Question 10

Is lower CAC always better?

Accepted Answer

No. The goal is profitable growth, not minimal CAC. Sometimes spending more to acquire customers is the right move if they are worth far more than they cost.

What Is Customer Acquisition Cost (CAC)?

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