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What is Customer acquisition cost (CAC)?

Customer acquisition cost (CAC) is the amount of money a company spends to acquire each new customer. This metric helps businesses determine the effectiveness of their marketing campaigns and identify areas where they can improve their ROI.

Calculating CAC involves adding up all the expenses associated with acquiring new customers, including advertising costs, sales team salaries, and any other direct costs. Once this figure is determined, it's divided by the number of new customers obtained during that period to get an average CAC.

The importance of understanding CAC cannot be overstated. By knowing how much it costs to acquire each customer, companies can adjust their marketing strategies and budgets accordingly. They can also focus on retaining current customers instead of constantly chasing after new ones.