How to Calculate Customer Acquisition Cost from Advertising

If you only track one number from your advertising, make it customer acquisition cost (CAC). It tells you what it really costs to win a customer, and whether your growth is profitable. Here's how to calculate it, including for channels like radio and billboards that don't produce clicks.

This guide is part of our guide to measuring billboard, TV and radio advertising.

The formula

CAC = Total acquisition cost ÷ Number of new customers

Over the same period. If you spent $15,000 on marketing in a quarter and won 100 new customers, your CAC is $150.

What to include

Cost	Simple CAC	Fully loaded CAC
Media spend (radio, TV, OOH, digital)	✓	✓
Creative and production	✓	✓
Agency and freelancer fees	✓	✓
Marketing software and tools		✓
Share of marketing and sales salaries		✓
Promotions and discounts for new customers		✓

Use simple CAC to compare campaigns; use fully loaded CAC to judge whether the business model works.

Blended vs. channel CAC

• Blended CAC: all acquisition costs ÷ all new customers (including referrals and organic). The most honest view of overall efficiency.
• Paid CAC: paid costs ÷ customers from paid channels.
• Channel CAC: one channel's cost ÷ customers attributed to it.

Channel CAC is useful but unreliable when channels influence each other. Radio drives searches; search gets the credit. Compare channel CAC with blended CAC, and use incrementality tests for big decisions.

CAC for offline channels

1. Add up the campaign's total cost (media, production, fees).
2. Count tracked new customers: vanity URL, promo code, call tracking. See QR codes, promo codes and vanity URLs.
3. Add untracked customers estimated from "How did you hear about us?" answers (how to survey customers).
4. Better still, compare new customers in the campaign area against your baseline or a control area.
5. Divide cost by incremental customers.

Example: a $9,000 radio campaign. 25 customers used the radio code; surveys suggest another 35 heard the ads. Estimated CAC ≈ $9,000 ÷ 60 = $150.

Put CAC in context: LTV

CAC alone doesn't tell you if $150 is good. Compare it with customer lifetime value (LTV), the gross profit a customer generates over the relationship.

• If a customer generates $600 in gross profit over time, a $150 CAC gives an LTV:CAC of 4:1. Healthy.
• If they generate $200, it's 1.3:1. Thin, especially after overheads.

Also check payback period: how many months of gross profit it takes to recover CAC. A long payback strains cash flow even when LTV:CAC looks good.

Ways to lower CAC

1. Improve conversion on your landing pages and sales process. Often the cheapest win. See why ads don't convert.
2. Target better so you spend less reaching people who'll never buy.
3. Strengthen your offer and call to action.
4. Build brand awareness, which tends to make every channel more efficient over time. See radio vs. digital ads.
5. Invest in referrals and reviews, which bring in customers at a lower cost.
6. Retain customers longer, which raises LTV and lets you afford a higher CAC. See customer retention strategies.

A quick CAC worksheet

Line	Your number
Media spend this period
Creative and production
Agency / freelancer fees
Total acquisition cost
New customers this period
CAC (total ÷ customers)
Average gross profit per customer (lifetime)
LTV:CAC

Report it consistently

Track CAC monthly, by channel and blended, alongside LTV and payback. It belongs at the top of your advertising KPI scorecard, and it's one of the first metrics investors ask about.