What is a customer acquisition cost (CAC)?

Customer acquisition cost (CAC) refers to the total expenses incurred in acquiring a new customer for a business. This includes all costs associated with marketing, sales, and any other investments aimed at attracting and securing new customers. By focusing on this metric, businesses can gauge the effectiveness of their marketing efforts and the overall profitability of their customer acquisition strategies.

Understanding CAC is crucial for determining whether a business's strategies are sustainable in the long term. A lower CAC means that the business is spending less to attract each new customer, improving profitability potential. In contrast, the other options such as average revenue generated per customer, profit made on each sale, and total cost of goods sold, focus on different aspects of business finance and do not provide a direct measure of the costs associated with acquiring new customers. Therefore, recognizing CAC is essential for evaluating the efficiency of customer acquisition efforts and overall business health.