Every customer comes with a cost. But is yours too high?
All companies are fuelled by the goal of growing their customer base. It’s what drives boardroom conversations, fuels funding rounds, and justifies marketing budgets. But behind every new customer lies an often overlooked reality: the cost of acquiring them.
At first glance, it sounds like business as usual. Of course, it costs money to acquire customers. But if left unchecked, acquiring every new customer could eat away at your profitability more than ever before.
If you’re paying more to acquire customers than they’re worth, every decision you make about marketing, onboarding, and product strategy gets harder. Cash gets tighter, growth slows, and the leadership starts asking uncomfortable questions.
But here’s the good news: customer acquisition cost is controllable. It’s not some random, runaway cost. With the right strategy, you can lower it. You can acquire better customers for less, increase retention, and shorten payback periods.
In this guide, you’ll learn how to calculate customer acquisition cost, why it matters, and powerful strategies to bring it down—fast.
Key pointers
- Customer acquisition cost (CAC) is the total expense of acquiring a new customer. It includes marketing, sales, and onboarding costs. CAC reveals how efficiently a business converts prospects into customers, serving as a key measure of profitability and growth efficiency.
- To calculate customer acquisition cost, divide total marketing, sales, and onboarding costs by the number of new customers acquired in a specific period. This formula shows how much it costs to convert a prospect into a paying customer, helping businesses measure acquisition efficiency and profitability.
- CAC directly impacts profitability, cash flow, and growth potential. A high CAC limits your ability to scale and affects cash flow, while a low CAC boosts growth. Tracking CAC helps companies optimize marketing, allocate budgets effectively, and reduce payback periods.
- Reduce CAC by optimizing support, product development, and customer success. Build self-service tools, use AI-powered chatbots, foster customer advocacy, and improve onboarding. These strategies increase retention, cut support costs, and boost referrals, lowering CAC.
What is the customer acquisition cost (CAC)?
Customer acquisition cost (CAC) is the total expense a business spends to gain a new customer. It includes marketing, sales, and advertising costs. Lowering CAC while maintaining quality leads helps businesses grow profitably and improve return on investment (ROI).
In simple terms, CAC tells you how much you’re paying to get one new customer. CAC includes costs like LinkedIn ads, sales team salaries, onboarding software, and customer support. Every effort that helps turn a lead into a paying customer gets factored into CAC.
Why does CAC matter so much?
High CAC means you’re paying too much to acquire new customers. When you spend $500 to bring in a customer who only pays you $300, you have a problem. The lower your CAC, the more profitable your company becomes. By keeping your CAC under control, you can grow faster, increase margins, and reinvest in product development.
How to calculate customer acquisition cost?
To calculate customer acquisition cost (CAC), divide total costs for marketing, sales, and onboarding by the number of new customers acquired in a specific period. This formula reveals how much it costs to convert a prospect into a paying customer and helps companies measure profitability, marketing efficiency, and scalability.
The customer acquisition formula goes:
CAC = Total marketing + sales + onboarding costs
————————————————————
Number of new customers acquired in a given timeframe
Example:
Imagine that your company. In Q1, you spent:
- $40,000 on marketing campaigns (like Google ads and team salaries).
- $30,000 on sales salaries, commissions, and tools like HubSpot CRM.
- $10,000 on onboarding expenses (salaries of support agents and live chat tools).
You acquired 400 new paying customers during this period.
CAC = ($40,000 + $30,000 + $10,000) ÷ 400 = $200 per customer
This means every customer you acquire costs your business $200.
Why is CAC important for your business?
Customer acquisition cost (CAC) is a critical SaaS metric that measures the total cost to acquire new customers. It directly impacts profitability, cash flow, and scalability. By tracking CAC, companies can assess marketing efficiency, optimize sales strategies, and ensure customer acquisition efforts remain cost-effective and sustainable.
CA) is one of the most crucial customer success metrics for any SaaS business. It determines how much it costs to convert a lead into a paying customer and influences everything from profitability to growth potential. Every dollar spent on marketing, sales, and onboarding has a ripple effect on your bottom line.
Let’s explore further how CAC affects profitability, scalability, and long-term growth for your company.
1. CAC impacts profitability
Profitability is the bedrock of every SaaS company, and CAC directly affects how much profit a business can generate. When CAC is too high relative to the revenue brought in by a customer, profitability suffers.
And business growth becomes unsustainable if your Customer Lifetime Value (LTV)—the amount of money your customer is expected to spend with your business as long as they use your product or service—isn’t outpacing your CAC.
This is why investors and executives keep a close eye on the LTV-to-CAC ratio.
The LTV-to-CAC ratio measures the relationship between the revenue a customer generates over their lifetime and the cost incurred to acquire them. For a healthy SaaS business, the industry standard is a 3:1 ratio, according to SaaS experts. This means that for every $1 you spend to acquire a customer, you should earn $3 in revenue.
2. CAC is essential in budgeting and resource allocation
Every budget decision a SaaS company makes should be driven by CAC. If you know how much it costs to acquire customers from different channels, you can optimize where you allocate your budget. This ensures you’re spending on the most efficient, high-impact strategies.
Here’s how you leverage CAC in budgeting:
- Channel assessment: Identify which acquisition channels (like paid ads, SEO, or outbound sales) have the lowest CAC.
- Budget shifts: Increase the budget for channels with the lowest CAC and reduce budget allocation for higher-cost channels.
- Regular audits: Assess CAC on a quarterly basis to spot trends, seasonal fluctuations, and emerging opportunities.
For example, if you notice that paid ads on Google have a CAC of $400 while SEO content marketing has a CAC of $150, the logical choice is to shift budget from paid ads to SEO. The goal is to double down on low-cost acquisition methods while reducing reliance on costly methods.
3. CAC affects cash flow and payback periods
Cash flow is the oxygen of a SaaS business, and CAC has a direct impact on how fast cash flows back into the company. If it takes too long to recover the cost of acquiring a customer, it limits a company’s ability to reinvest in growth, hire employees, and develop new features.
This is where the concept of the CAC payback period comes into play. The payback period is how long it takes for the revenue from a customer to cover the cost of acquiring them.
Shorter payback periods = faster growth. If it takes 12 months to recoup CAC, you’ll have to wait a year to reinvest that money. But if you can reduce the payback period to 3 or 6 months, you unlock liquidity to fuel faster expansion.
Here’s how you can shorten the payback period:
- Faster customer onboarding: The faster customers activate and start paying, the shorter your payback period.
- Front-loaded pricing models: Encourage customers to sign up for annual plans (not monthly) to get upfront cash.
- Retention-focused growth: Retain more customers to avoid re-acquisition costs.
7 strategies to reduce customer acquisition cost
Customer acquisition cost (CAC) can be significantly reduced by optimizing customer support, customer success, and product development. By enhancing onboarding, leveraging self-service support, building viral product features, and fostering customer advocacy, SaaS companies can lower CAC, drive organic growth, and create a sustainable, scalable growth engine.
Here are 7 advanced strategies to maximize efficiency, boost customer retention, and turn your customers into your most effective acquisition channel.
1. Turn customer support into a growth engine
Customer support is no longer a “cost center,” but a powerful engine for growth and customer acquisition. When support agents deliver fast, effective resolutions, customers are more likely to refer your product to others, reducing your reliance on paid marketing.
How to do it:
- Shift from reactive to proactive support: Use live chat, self-service resources, and knowledge bases to resolve issues before they arise.
- Turn support interactions into upsell opportunities: Use customer inquiries as an opportunity to introduce premium features.
2. Build a self-service support ecosystem
Not every customer wants to chat with a support agent. Many prefer to resolve issues on their own. In fact, a whopping 81% of customers attempt to solve the problem before reaching out to a live agent, a Harvard Business Review study shows. By creating self-service resources, you reduce support requests, increase efficiency, and lower acquisition costs.
How to do it:
- Build a robust knowledge base with FAQs, product walkthroughs, and troubleshooting guides.
- Use in-app support widgets to increase ticket deflection.
- Create interactive product tours.
3. Focus on customer success to drive referrals
Happy customers will refer more customers. Customer success ensures that customers achieve their goals with your product, making them more likely to recommend it to others. And just a 5% increase in customer retention can boost profits by 25% to 95%, as per research.
How to do it:
- Implement customer success check-ins at key milestones (e.g., 30, 60, 90-day touchpoints).
- Offer loyalty programs that reward referrals.
- Track customer sentiment using Net Promoter Score (NPS). Proactively engage customers who give high NPS scores.
4. Use product-led growth (PLG) approach
Product-Led Growth (PLG) is one of the most efficient ways to reduce CAC. By focusing on improving every aspect of your product, you improve customer engagement, which naturally leads to an increase in customer lifetime value and a decrease in your acquisition costs.
How to do it:
- Launch freemium versions of your product with key features unlocked.
- Offer free trials with in-app tutorials that convert users into paid plans.
- Use product usage data to identify when users are ready for an upsell.
5. Collect and use customer feedback to guide product development
Customer feedback isn’t just for product teams—it can be used to reduce acquisition costs. By understanding what customers love, you can build features that increase word-of-mouth referrals.
How to do it:
- Implement customer feedback loops.
- Build features that address customer pain points.
- Add product updates that users actively request.
6. Build a customer community
Customer communities reduce support costs and foster a sense of belonging. When users help each other, you spend less on support while encouraging loyalty.
How to do it:
- Create Slack or Discord communities where users can ask questions and support each other.
- Reward top contributors with incentives like badges or special access.
7. Improve customer support with AI-powered chatbots
AI chatbot ensure 24/7 round-the-clock support, minimal first response time, and personalized customer service without having to scale support teams. By providing personalized responses to repetitive queries, chatbots handle a chunk of customer requests without human intervention, freeing support agents to tackle more complex issues and improve customer satisfaction.
How to do it:
- Choose the right AI chatbot software based on its customization, automation, and integration capabilities.
- Ensure access to customer data like user’s name, history, and current support issues to allow chatbots generate personalized responses.
- Create an escalation path for complex issues. When a user asks something the bot can’t handle, it should escalate the case to a human agent.
Reduce customer acquisition cost with the right tool
Customer acquisition costs are rising, and businesses are feeling the pinch. In fact, studies show that customer acquisition costs have surged by 60% in a span of just 5 years, squeezing margins tighter than ever.
So, the key to reducing CAC lies in rethinking the tools you use to acquire, support, and retain customers. Most companies lean on legacy platforms that were never designed for today’s customer expectations.
You need a system built to deliver value at every turn, anticipate needs, provide a seamless experience across every touchpoint, and adapt to feedback. That is, you need a tool that can harness the full potential of AI in customer service to unify customer insights, predict needs, and empower your teams with actionable data.
You need a platform that doesn’t just “support” AI, but an AI-native system that embodies AI at its core. It doesn’t just automate—it predicts. It doesn’t just assist—it anticipates. It doesn’t just manage support—it connects the dots between customer support, product development, and engineering.
DevRev is the only AI-native platform built from the ground up to connect customer support, product development, and engineering. Unlike legacy tools with bolted-on AI capabilities, DevRev’s AI-first design is embedded into every workflow, every interaction, and every data point.
Here’s why DevRev outperforms every other system in reducing your CAC:
- One unified system: No more juggling support, CRM, and software engineering tools. DevRev combines them into one platform.
- Robust knowledge graph: DevRev’s knowledge graph gives agents, engineers, and product teams a shared source of truth, so they can see the full context of every customer issue.
- Ticket deflection: Thanks to DevRev’s PLuG, a GPT-powered self-service bot, support teams can focus on complex cases and
- AI-driven analytics: DevRev predicts and preempts customer needs before they become complaints.
With DevRev, you’ll reduce ticket volume, boost self-service, and unify your support, product, and engineering teams. The result? Lower costs, faster support, and happier customers.
Ready to see DevRev in action? Book a demo today and see how an AI-native platform can turn customer experience into your biggest growth lever.
