CAC metrics for marketers: How to speak the same language as your CFO
As a marketer, you’re probably used to measuring your success with metrics like revenue, pipeline, and cost per acquisition (CPA).
But your CEO and CFO have a different metric on their minds: customer acquisition cost (CAC).
Understanding CAC is a way to align marketing with company goals and elevate marketers to a seat at the leadership table. Here are the CAC formulas to know — and our case for why you should know them.
What is CAC?
CAC is your company’s total cost to acquire a paying customer: the sum of all of its GTM expenses (including employee salaries) is divided by the total number of customers won.
This is a measure of business health. At Clearbit, we’re always encouraging marketers to be revenue-driven by measuring revenue and pipeline as core success indicators. But CAC goes one step beyond revenue and pipeline, because it takes costs into account.
Why should marketers care about CAC?
Sidney Waterfall, General Manager at Refine Labs, points out that marketers don’t typically think about CAC on a regular basis until they reach a company leadership level, but it’s a metric that business leaders understand well.
“The difference between a business leader and a marketing leader is understanding these metrics," says Sidney Waterfall. "Every marketer should start getting familiar with CAC.”
CAC helps executives and finance teams discern whether the GTM organization is running efficiently. When your CFO and CEO know you’re thinking about CAC too, it builds trust, and you can speak the same language when discussing strategic shifts and budget requests.
The CAC formula
To calculate CAC, take the full spend of your go-to-market (GTM) organization, which is typically the marketing and sales departments. Then, divide by the total number of customers that were won in the same time period.
When we say GTM spend, we mean all of it, including employee salaries, commissions, taxes, benefits, business travel, training, and recruiting spend. Fully loaded.
Differences between CAC and CPA
CAC only counts paying customers, whereas CPA may count a non-paying lead — or other conversion — as an acquisition.
In addition, CPA is often calculated for a specific channel or a specific campaign (e.g., “paid media” or “spring launch campaign”), and it accounts for just that part of the budget, rather than the entire marketing and sales organizations’ spend.
Some teams find it helpful to look at CAC “subtypes” that measure the efficiency of different efforts within GTM. Examples include Marketing CAC and Advertising CAC.
Looking at all three types — Total CAC, Marketing CAC, and Advertising CAC — can add color to your picture of business health.
But no matter which CAC subtype we’re calculating, notice that we always use the same denominator: all customers won. If we’re calculating advertising CAC, we’re still using the blended “all customers” number — not just customers attributed to paid ads. This is because attribution technology isn’t perfect, and ad spend influences organic traffic.
Once you know your CAC, you can track other metrics, like CAC payback and LTV:CAC ratio.
CAC payback is the time it takes for a paying customer to recoup their acquisition cost for the business.
Sidney uses CAC and CAC payback calculations to shape paid strategies for clients.
“At Refine Labs, we’ve had customers with a very low advertising CAC payback — two months, for example,” Sidney says. “This is a signal that we may want to put our foot on the gas and invest more in marketing and ads to spur growth.”
The ratio of customer lifetime value (LTV) to CAC is another indicator of business health. The gold standard is 3:1, meaning that a customer’s LTV is three times as much as what you’ve spent to acquire them.
If it’s less — and you’re only getting double your investment, for example — it’s time to reevaluate your spend and strategies.
Take a seat at the leadership table by learning the language of CAC
If you’re thinking, “I didn’t go into marketing to deal with all this math,” we understand.
And yet, these metrics will help you if you’re a tactical marketer moving up in your organization — or a marketing leader transitioning to a business leader role.
Understanding CAC elevates marketers. If you’re curious about your company’s CAC, chances are your colleagues want to help.
Sidney says, “Your finance team likely wants to share CAC data and discuss how your company is trending. They may not give you calculations with private information like salaries, but I think questions about CAC are acceptable for anyone at any level to ask. Looking at these metrics is how you start shifting your mindset.”