Customer acquisition cost is what you spend to win one new paying customer.

It matters because growth only pays if a customer returns more than they cost.

You can always buy more customers by spending more. CAC tells you the price. Set beside lifetime value, it shows whether each new customer adds to the business or drains it.

It also decides how fast you can grow on your own cash, since every new customer has to be paid for months before they pay you back.

Divide everything you spent on sales and marketing by the customers it brought in.

CAC = (sales spend + marketing spend) ÷ new paying customers

Spend means all of it: ads, the salaries and commissions of sales and marketing people, agencies, tools and content. Customers means new paying customers, not signups or trials.

Blended CAC and paid CAC answer different questions.

Blended CAC divides all sales and marketing spend by all new customers, including the ones who found you through search or word of mouth. Paid CAC divides ad spend by the customers those ads brought. Blended CAC tells you what growth costs overall. Paid CAC tells you whether the next dollar of advertising is worth spending.

Trial conversion changes CAC without changing what you spend.

With free trials, CAC is the cost of a trial divided by the trial-to-paid rate. In the example each trial cost $80,000 ÷ 500, which is $160. At 20% conversion that is $800 per customer. At 25%, the same spend and the same trials give 125 customers at $640 each.

You lower it by converting more of the people you already pay to reach.

• Raise trial-to-paid conversion. Every extra trial that pays spreads the same spend over more customers. See trial-to-paid conversion rate.
• Raise visitor-to-trial conversion. More trials from the same traffic lowers the cost of each one. See visitor-to-trial conversion rate.
• Cut channels that bring trials but not customers. Work out CAC for each channel on paying customers, and move budget to the ones that hold up.

1Capture works on the first of these. Its trial pages take a card at signup, authorize the full first payment and collect it when the trial ends, on your own Stripe account. See Stripe trial conversion.

These mistakes understate CAC.

• Leaving out salaries. Ad spend alone is paid CAC. Full CAC includes the people, tools and agencies behind the sale.
• Dividing by signups or trials. CAC counts paying customers. Cost per trial is a different, smaller number.
• Mismatching the timing. If a sale takes 60 days, this month's customers came from spend two months ago. Line the periods up.
• Counting upgrades as new customers. An existing customer who moves up a plan is expansion, not an acquisition.