CAC (customer acquisition cost)

CAC is the fully loaded cost of acquiring one new customer. Both halves of that ratio are routinely flattered, and in opposite directions, which is why two people can compute CAC for the same business and differ by a factor of two.

The numerator gets understated by counting only media spend. Salaries, contractor and agency fees, creative production, tooling, and the sales cost attributable to new business are all part of what the company spends to acquire a stranger. The denominator gets inflated by counting all customers rather than new ones. Both errors push the number down, and together they produce a figure comfortable enough that nobody interrogates it.

Work it through. A business spends $40,000 on media in a month and records 500 orders, so media-only CAC across all orders reads $80. Now correct both terms: add $12,000 of salaries, tools, and production, and separate the 300 orders that came from returning customers. That is $52,000 divided by 200 new customers — a true CAC of $260, against a reported $80. Nothing about the business changed. The reported figure was measuring something else and calling it CAC.

Keep two versions deliberately, and never let them substitute for one another. Paid-only CAC per channel is the right input for channel decisions, because it isolates what varies when you move budget. Fully loaded CAC is the only version that belongs in payback or LTV:CAC, because those tests are about whether the business can afford its own growth, and the business pays the salaries whether or not the ratio counts them.

Then watch the margin, not just the average. Blended CAC is a historical average dominated by your cheapest, earliest-acquired customers; marginal CAC is what the next increment of spend costs. An account can report a healthy $260 blended CAC while the last $10,000 of spend acquires customers at $500, because the efficient audiences saturate first. Growth decisions are made at the margin, so scaling on a blended figure means scaling on a number that describes spend you already made.

A useful discipline: recompute CAC by acquisition cohort and by channel each month, on fully loaded cost, and look at the trend rather than the level. Rising marginal CAC is not automatically a problem — it is the expected shape of scale — but it needs to stay inside what payback and contribution can carry. Whenever the figure is quoted in a decision, say which version it is, because the words "our CAC is $80" have caused more misallocated budget than any deliberate mistake.