Question 1

What is customer acquisition cost (CAC)?

Accepted Answer

Customer acquisition cost is the total amount you spend on sales and marketing to acquire one new customer. Unlike CPA, which only counts ad spend, CAC includes everything: advertising, sales team salaries, marketing tools, content creation, and agency fees.

Question 2

What is a good LTV:CAC ratio?

Accepted Answer

A 3:1 LTV:CAC ratio is the commonly cited benchmark, meaning each customer returns three times what you spent to acquire them. Below 1:1 means you lose money on every customer. Above 5:1 is strong but may indicate you are underinvesting in growth.

Question 3

What is the difference between CAC and CPA?

Accepted Answer

CPA measures ad spend per conversion. CAC includes all sales and marketing costs: ad spend, sales salaries, tools, content, and overhead. CAC is always equal to or higher than CPA. If the gap between them is large, your non-ad costs are a significant part of your acquisition engine.

Question 4

How do I calculate CAC payback period?

Accepted Answer

Divide your CAC by the monthly revenue (or gross profit) per customer. If CAC is $300 and each customer pays $50 per month, payback is 6 months. After that point, the customer is generating net-positive return. A payback period under 12 months is considered healthy for most businesses.

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