Customer acquisition cost is the amount of money the business is required to invest in marketing and sales to acquire a new customer.
Burdened MArketing & Sales Cost ÷ Number of Deals Closed
Why It Matters
Customer acquisition cost is a key financial metric that marketing leaders should present to their C-suite peers and their board. A clear understanding of what the necessary spend is to acquire new customers is critical to forecasting marketing spend and overall company growth. It is also a metric that investors will want to know when being approached for funding.
Not only will a lower CAC allow you to acquire more customers, it will also decrease the amount of time it takes to recover that cost and increase customer lifetime value (LTV). The downside of CAC is that without the context of LTV, it is less significant since you cannot tell what net profit you are paying for with that new customer acquisition. There are two ways that it can be measured, gross CAC (before churn) and net CAC (after churn). 
When to Measure It
CAC becomes most important once a company has reached initial market fit ($1.5–2 million ARR) and is looking to aggressively scale and has its churn rate under control (2–5 percent). At this point, a company should have defined a clear and scalable marketing and sales model allowing for accurate CAC benchmarking and improvement. 
For early-stage companies, David Skok recommends, "making a simple adjustment to the sales and marketing team expenses to take only a portion of those salaries and expenses in the early days. That will give a better indication of how CAC will look in the future when you are at scale." 
Freemium models and marketing methods that can drive low-cost inbound leads at a high velocity have allowed companies to lower CAC, meaning that recent IPOs are two times more venture-capital-dollar efficient as they have been in the past.  Because of this, VCs will look closely at this metric when determining whether to invest.
According to the 2013 Pacific Crest Survey, in a sampling of companies with more than $2 million in revenue, respondents spent $0.92 to acquire $1 of new annual-contract-value revenue. For companies operating with less than $2 million in revenue, the median spend was $0.69, a 25 percent decrease from their larger counterparts. 
According to the Bessemer Ventures' Top 10 Laws of Cloud Computing and SaaS, "a CAC ratio of a third (0.33) or less is bad—this suggests it takes you at least three years to pay back your initial customer acquisition cost...At the other end, anything above 1 means you should invest more money immediately." 
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