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Every good business leader strives to understand and optimize the metrics that drive their organization’s success.
Understanding and comparing your average customer acquisition cost (CAC) to industry standards is essential in navigating the competitive business landscape. It acts as a compass, directing you through the challenges of today's economic environment.
Customer acquisition cost represents the total expense of acquiring a new customer. Once companies know the true cost associated with customer acquisition, they can fine-tune their financial planning, adjust marketing and sales approaches, optimize resource allocation and strengthen overall profitability.
This guide will show you how to calculate your business’ CAC, provide insights into industry benchmarks and explore how keeping a close eye on your customer acquisition cost helps fuel important decision making.
Calculating customer acquisition cost requires summing up all your expenses related to acquiring customers, such as marketing, advertising, etc., over a specific period. Then, you’ll divide it by the total number of new customers you acquired during that same period.
Understanding and regularly monitoring your CAC is crucial for making data-driven decisions to enhance your company’s performance. It can influence how you determine your marketing budget allocation, refine your customer targeting and build product strategies.
The customer acquisition cost formula is relatively straightforward. Let’s break down the factors that go into the calculation a bit more:
1. Combine marketing and sales costs: Add together the costs associated with acquiring customers during a specific period such as a monthly or quarterly basis, including:
2. Determine the quantity of new customers acquired: Count the number of new customers you gained during the same time frame as step one.
3. Apply the formula: Divide the total acquisition costs from step one by the number of new customers acquired from step two. The result is your Customer Acquisition Cost.
What constitutes a "good" CAC can vary across industries and business models, but a general rule of thumb is to aim for a customer lifetime value (LTV) to CAC ratio of 3:1 or higher.
LTV is an important companion metric to CAC that measures the average revenue customers brought in from their first engagement with your company to the moment they churn. So, when we look at the goal LTV:CAC ratio of 3:1, we’re saying the value a customer brings to your business should be at least three times the cost it took to acquire them.
Comparing LTV against CAC can offer clearer strategic insights than customer acquisition cost alone. A lower CAC generally indicates efficient and cost-effective customer acquisition. However, a CAC that is too low may suggest poor investment of funding and resources in acquiring valuable customers. On the other hand, a high CAC relative to LTV may reveal inefficiencies in the customer acquisition process.
There are four major factors that can influence your final CAC value.
When you look closely at the average CAC for each specific industry, there are two types of customer acquisition costs to account for:
Calculating the average across the two types of CAC gives us the overall combined average CAC for each industry.
| Industry | Average Organic CAC | Average Paid CAC | Combined Average CAC |
| Commercial Insurance | $590 | $600 | $593 |
| Construction | $212 | $486 | $281 |
| Entertainment | $190 | $468 | $260 |
| Financial Services | $644 | $1,202 | $784 |
| Higher Education | $862 | $1,985 | $1,143 |
| IT and Managed Services | $325 | $840 | $454 |
| Legal Services | $584 | $1,245 | $749 |
| Manufacturing | $662 | $905 | $723 |
| Real Estate | $660 | $1,185 | $791 |
| B2B SaaS | $205 | $341 | $239 |
All amounts are in US dollars.
Source: FirstPageSage, 2023.
It’s interesting to note that higher education has a combined average CAC ($1,143) that is drastically higher than all of the others. It’s also almost double the average CAC of the ten industries we reviewed, which came in at $606. This is largely due to the niche audience they serve and the considerable resources required to attract and enroll students.
Studying industry-specific benchmarks for your own field can provide a yardstick to measure your business’ CAC against average expectations.
The commercial insurance industry spends somewhat heavily on new customers, with an average CAC of $593.
Acquiring clients in the insurance industry often demands significant marketing and sales efforts as companies vie for a share of a complex and highly competitive market.
With a fairly low combined average CAC of $281, the Construction industry typically uses a balanced approach to customer acquisition, leveraging both online and traditional methods. As Construction Business Owner magazine advises their audience, “Digital marketing is very popular, but traditional advertising still works well in many areas.”
The entertainment industry exhibits a comparatively low CAC, with an average of $260, through its use, in part, of digital platforms and innovative marketing strategies. The industry optimizes cost-effective approaches to attract audiences with a focus on efficient online channels, such as social media and streaming platforms, coupled with creative and engaging content marketing.
Here, the term “entertainment industry” represents a cross section of film, streaming services, broadcast television, music, publishing and leisure attractions.
Due to the intricate nature of acquiring clients in this highly competitive sector, the financial services industry faces a higher acquisition cost than most, as we see in its average CAC of $784.
The industry's complex product offerings and services such as banking and accounting, coupled with stringent regulatory requirements, necessitate substantial marketing and sales investments to reach and convert potential customers.
As we noted previously, considerable resources are required within the higher education industry to attract and enroll students, resulting in the highest average CAC of $1,143, almost five times the lowest CAC on our list.
Colleges and universities face a prolonged sales cycle and a need for comprehensive outreach strategies, including extensive advertising, campus events and personalized communication.
A combined CAC of $454 places the IT and managed services team somewhat in the middle. In this highly competitive sector, acquiring clients involves substantial investments in targeted marketing, skilled personnel, and sophisticated sales efforts to navigate intricate technological landscapes.
With complex services and a prolonged sales cycle, legal firms often invest significantly in targeted marketing, professional networking and personalized outreach to secure and retain clients. This results in a higher CAC of $749, reflecting the resource-intensive nature of attracting clients in this competitive industry.
With a CAC of $723, the manufacturing industry often relies on long-term business relationships for their revenue streams, meaning acquiring new customers can be a slow process.
By optimizing production processes and leveraging industry-specific channels, manufacturing companies can attract clients through a strategic approach that aligns marketing efforts with the sector's unique challenges and opportunities.
The real estate industry demonstrates a challenging and crowded landscape, with the second-highest CAC average of $791.
With a multifaceted approach involving extensive marketing, advertising and personalized sales efforts, real estate firms invest substantially to attract and retain clients. Their efforts result in a higher CAC that mirrors the resource-intensive nature of navigating the complex and competitive landscape of the real estate sector.
The B2B SaaS industry maintains the lowest average CAC among the industries we monitored, with a combined average CAC of $239.
Their low acquisition costs are typically a result of a strategic blend of digital marketing efficiency, offering free trials and freemium models, leveraging word-of-mouth and referral marketing and benefiting from scalable business models.
When taken all together, these factors collectively lead to cost-effectiveness, enabling B2B SaaS companies to reduce onboarding costs, foster organic referrals and scale outreach without increasing their marketing expenses.
Understanding the value and meaning of your customer acquisition cost in relation to your customer lifetime value is a strategic imperative for every finance and business leader.
Let’s explore a few real-world case studies and seven compelling advantages of having clear visibility into your CAC.
If you notice high or fluctuating CAC, it can indicate inefficiencies in your sales funnel, marketing strategies or customer onboarding processes. Businesses can use the insights from their CAC to pinpoint specific areas that need improvement and implement targeted changes to enhance overall efficiency.
Case study: Lookout, cybersecurity software firm
When the pandemic began, Senior Financial Analyst Ricardo Trigueros was asked to rebudget for a 20% expense reduction across-the-board.
Traditionally, without complete planning software, it would take their finance team days to execute a major rehash of the company’s budget, which must take into account projections around their LTV/CAC ratio, churn and monthly revenue per product. But with Vena’s budget modelling capabilities, Ricardo was able to achieve this in only one day.
Because CAC is often analyzed in proportion to customer lifetime value (LTV), tracking your CAC is the first step to establishing a healthy balance between the cost to acquire a customer and the potential revenue generated over that customer's lifetime.
The goal is to always keep your CAC lower than your LTV. Making sure that the long-term value of acquiring a customer justifies the cost is an important step toward success.
Knowing your CAC also allows for better financial forecasting and planning overall. Your business can set realistic budgets, project revenue streams, and determine the viability of various customer acquisition channels. This benefit is particularly valuable for startups and growing companies aiming to manage their finances as smartly as possible.
Case study: Thomas International, talent assessment technology provider
When the Thomas team began focusing on incorporating new KPIs like CAC and LTV into their financial planning, they became a stronger strategic partner within the rest of their organization by providing:
Tracking CAC data provides the numbers you need to support and validate key business decisions. Whether entering new markets, launching products, or refining target demographics, businesses with clear insight into their CAC can make informed choices that align with overarching growth objectives.
Businesses can disperse their resources more effectively by understanding the cost involved in acquiring a new customer. This could include optimizing marketing budgets, refining advertising strategies and streamlining sales processes to ensure maximum return on investment.
Case study: Hunter Fan Company, ceiling fan manufacturer
Jeremy Vance, a Senior Accountant at Hunter Fan Company, acknowledged that, thanks in part to Vena’s ability to simplify the process of reporting and give the company visibility into their gross margin by customer, Hunter has been able to adjust their resource allocations to more strategically nurture their customers.
For any company seeking external funding or aiming to attract investors, a well-managed CAC is a compelling metric to share. It demonstrates that you use caution when handling financials, have a keen understanding of the market and have a strategic approach to customer acquisition — factors that help instill confidence in potential investors.
CAC serves as a key performance indicator (KPI) that helps identify and illustrate the effectiveness of your marketing and sales efforts. Monitoring changes in CAC over time allows your business to assess the impact of different campaigns, channels or initiatives on customer acquisition, allowing for data-driven decision making.
Case study: Sprout Social, social media management and data analytics software platform
Sprout’s Senior Manager of Finance, Kristina Bittorf, found that adding in new KPIs like CAC and efficiency ratios to her budgeting, forecasting, and reporting allowed her team to take their analysis of their gross margins and expenses to another level.
The resulting data points are being put to use to improve their retention strategy , fuel go-to-market initiatives, and plan growth objectives such as a potential IPO or hiring staff for an overseas office.
Yes, different types of CAC are useful metrics for different stages and aspects of the customer journey. The initial CAC captures the cost of acquiring a brand-new customer. Renewal CAC measures the costs associated with renewing an existing customer’s engagement. Reactivation CAC comes into play when re-engaging with customers who’ve become dormant.
Market CAC examines the broader market strategy costs, while customer CAC focuses on individual customer-specific acquisition expenses. And, product CAC delves into the costs of introducing new products or services to the market.
Yes. For example, smaller businesses face the challenge of building brand awareness from the ground up, which can impact their initial CAC. On the opposite end of the spectrum, more complex sales processes and higher competition may impact CACs for larger enterprises.
Including salaries in the CAC calculation provides a more accurate representation of the total investment in acquiring a customer. Since salaries contribute to the overall effort expended by your team in customer acquisition activities, including them creates a more holistic understanding of the costs involved.
The basic formula for calculating CAC can be deceptively simple.
You’ll need to gather the data necessary to calculate CAC from teams outside of the finance department — typically sales and marketing. And depending on the size of your business and the specific type(s) of CAC you want to identify, these calculations can get complex.
With Vena, you can easily source data from multiple systems like your CRM and ERP to fuel your financial planning and analysis.
You can carry out your financial modeling in the familiar environment of Excel as Vena reconciles your data back to a centralized database and enables you to collaborate across departments. Deliver stunning dashboards with all your most important metrics—like CAC—to your board, employees and investors.
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