What does it actually cost your business to acquire a single new customer? Many managers and marketers can tell you exactly what their turnover is and the size of their marketing budget, but surprisingly few know the precise cost of winning a new customer. However, this figure is absolutely crucial, as it tells you exactly how much you can and should invest to create profitable growth, rather than basing decisions on gut instinct.
What is CAC?
CAC is an abbreviation for Customer Acquisition Cost, which is the cost of acquiring a new customer. In its simplest form, you can calculate this by dividing your total sales and marketing costs by the number of new customers you’ve gained over a given period. For example, if your company spends kr 100,000 on a campaign that results in 20 new customers, the calculation is kr 100,000 divided by 20, giving you a CAC of kr 5,000 per customer. This is a good starting point, but to gain real insight, we need to dig deeper.
A customer for kr 5,000 can be both cheap and expensive
A CAC of kr 5,000 says very little on its own about whether your marketing is profitable. The figure must always be considered in relation to the value the customer creates. If the new customer is a business that signs a contract worth kr 100,000 with a good margin, a cost of kr 5,000 is an excellent result. On the other hand, if the customer only makes a one-off purchase of kr 3,000, you are losing money on the acquisition, at least in the short term. That's why it's crucial to evaluate CAC against the customer's total lifetime value (LTV), which takes into account repeat purchases, upsells, and the duration of the customer relationship.
The difference between a lead and a customer
Many digital campaigns are optimised to generate the most leads at the lowest possible price, but it's the profit from actual customers that pays the bills. Therefore, it's important to distinguish between CPL (Cost Per Lead) and CAC (Customer Acquisition Cost). Imagine you're running a campaign that generates 100 leads at a price of kr 500 each. The total cost would then be kr 50,000, and a CPL of kr 500 might look good in the report. But if only 10 of these 100 leads end up becoming paying customers, the real cost per customer (CAC) becomes kr 5,000.
The quality of your leads determines profitability
This distinction becomes even clearer when we compare different campaigns. Imagine two options: Campaign A gets you 100 leads at kr 300 each, while Campaign B gets you 40 leads at kr 600 each. At first glance, Campaign A seems far superior, but profitability depends on quality. If only 2% of the leads from Campaign A convert into customers, you get two customers for a total cost of kr 30,000, resulting in a CAC of kr 15,000. If, however, 25% of the more expensive leads from Campaign B become customers, you get ten new customers for kr 24,000, with a CAC of just kr 2,400. The example shows why the marketing and sales departments must work closely together to assess the actual value of the marketing efforts.
Which costs should you include?
To calculate a meaningful CAC, you need to define which costs to include. A simple marketing CAC can include expenses directly related to the campaigns:
- Ad spend (e.g., Google, Meta, LinkedIn)
- Fees for agencies or freelancers
- Content production costs
- Software licences (e.g., publishing or analytics tools)
A more comprehensive calculation, often called a "fully loaded CAC", also includes the salary costs for the marketing and sales teams. The most important thing isn't which model you choose, but that you use the same method consistently over time. Only then can you compare your progress and see if your initiatives are having the desired effect.
The goal is profitable growth, not the lowest possible CAC
It's easy to fall into the trap of chasing the lowest possible cost per customer, but in the worst-case scenario, this can slow down your growth. Imagine you've found a way to acquire profitable customers for kr 2,000 each. It's often smarter to invest in acquiring 100 such customers, even if it's possible to get ten customers for a lower CAC of kr 1,000. The goal is not necessarily to cut costs, but to maximise total, profitable growth for the business.
For a subscription-based company like BookBeat or Fjordkraft, it can make sense to accept a high acquisition cost because the customer generates revenue month after month. An e-commerce store selling a low-margin item with few expected repeat purchases, on the other hand, must have a much lower CAC to be profitable. When you know your CAC and your customer's lifetime value, marketing transforms from an expense item into a predictable growth engine. This gives you the foundation you need to make strategic decisions about which channels to focus on, where you can scale up, and which campaigns should be adjusted or stopped.
Curious about how your business can take a more data-driven approach to marketing? Get in touch with us at Vekstloop for a no-obligation chat.
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