Definition
What is customer acquisition cost?
Customer acquisition cost is the total spent on marketing and sales to win a new customer, divided by the number of customers gained over the same period. The calculation includes paid media, content production, tools, fees and the time spent selling. The figure only means something when compared with the value a customer brings in over the life of their relationship with the business.
What the calculation has to count
Customer acquisition cost is calculated on all commercial spending for the period, not just the advertising bill. A calculation that leaves out selling time or agency fees produces a figure lower than reality. It can make a channel look profitable when it is not.
The figure is also calculated channel by channel. A channel can bring in plenty of visits and still be expensive per customer: comparing channels shows where the money is working.
How to interpret it
On its own, customer acquisition cost says nothing. Its ratio to customer lifetime value guides the budget decision:
- When value far exceeds cost, the model works and the budget can grow.
- When value barely exceeds cost, the margin is fragile: it is better to fix things before accelerating.
- When value is lower than cost, every new customer makes the business poorer.
- When the ratio is unknown, no budget decision has a sound basis.
Customer acquisition cost = (marketing spend + sales spend for the period) ÷ new customers gained over the same period
Spending includes media, content production, tools, fees and selling time. Existing customers who buy again do not count as new customers.
A company spends $6,000 on advertising and $2,000 on fees and tools in a quarter. Its team also puts in the equivalent of $4,000 of selling time. It gains 15 new customers. Its customer acquisition cost is $12,000 ÷ 15, or $800. Counting advertising alone, it would have found $400: a figure twice too flattering.
We read customer acquisition cost as one of the two figures that steer a marketing budget. The other is customer lifetime value. Every other metric (sessions, rankings, click-through rates) explains why those two figures move: it never replaces them.
A metric that changes no decision has no place on a dashboard. Customer acquisition cost passes that test: it is read by channel every month, then compared with what a customer brings in before any budget increase or cut.
Not to be confused with
- CPA
- CPA divides advertising spend alone by an action defined in advance (a sale, a request, a call). Customer acquisition cost counts all commercial spending and only retains new customers.
- Cost per signed quote
- Cost per signed quote isolates one acquisition source and stops at the closed sale: it is used to make media budget calls. Customer acquisition cost covers every source and is used to assess a business model.
Related concepts
Further reading
- Marketing metrics: the ones that change a decision
- Marketing budget and plan: the benchmark figures and what they hide
- Executive committees: the six-line marketing dashboard
- Online commerce: where the margin really is
Related services
Frequently asked questions
Does selling time count in customer acquisition cost?
Yes. The time your team spends selling is part of what a new customer costs, just like fees and tools. A calculation that leaves it out gives a cost lower than reality.
What is a good customer acquisition cost?
No amount is good in itself. Your customer acquisition cost is good when it stays well below the value a customer brings in over the life of their relationship with your business.
