Customer Acquisition Cost (CAC): A Simple Guide for Local Businesses
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Customer acquisition cost is what you spend, on average, to win one new customer. It turns a vague question like “is our marketing working?” into a number you can compare, track, and improve. Most guides talk about CAC for software companies, but it matters just as much for a salon, a plumber, or a dog walker.
This guide explains CAC in plain English, walks through an illustrative example for a small house cleaning business, and covers practical ways to lower it.
What Is Customer Acquisition Cost?
Customer acquisition cost (CAC) is the total cost of sales and marketing in a period divided by the number of new customers you won in that period.
CAC = Sales and marketing costs ÷ New customers won
Sales and marketing costs can include:
- Ads (online, print, radio, mailers)
- Promotions, discounts, and referral rewards
- Website, booking, and marketing software
- Time spent on quotes and sales calls, if you pay someone for it
- Agency or freelancer fees
Keep the method consistent. If you include staff time one month, include it every month, or the trend won’t mean much.
Why CAC Matters
CAC on its own tells you what a customer costs. It becomes powerful when you compare it with what that customer is worth. If a new client costs $150 to win and brings in $2,000 of profit over the next two years, that’s a great deal. If they bring in $100 of profit, you’re losing money on every new customer.
That comparison is called the LTV to CAC ratio. See customer lifetime value for how to work out the other half.
Worked Example: A House Cleaning Business
A two-van cleaning business tracks its marketing for one quarter. All figures are illustrative.
| Channel | Cost | New customers | CAC |
|---|---|---|---|
| Online ads | $2,400 | 16 | $150 |
| Door hangers | $900 | 3 | $300 |
| Referral reward ($50 credit) | $600 | 12 | $50 |
| Google Business Profile (time to update and reply to reviews) | $300 | 9 | $33 |
| Total | $4,200 | 40 | $105 |
The blended CAC is $4,200 ÷ 40 = $105 per new customer.
Breaking it down by channel shows a clear picture. Referrals and the free profile bring in customers cheaply. Door hangers cost twice as much per customer as online ads.
The owner moves the door hanger budget into a bigger referral reward and spends an hour a week on the Google Business Profile. If the next quarter brings the same 40 customers for $3,300, CAC falls to about $83.
How to Lower Your CAC
- Track where every customer comes from. Ask “how did you hear about us?” on every booking form and call.
- Lean into referrals. Happy customers are usually the cheapest source of new ones. A small reward makes it easy.
- Improve your free channels. Reviews, local SEO, and a complete business profile cost time, not ad spend. See local SEO.
- Fix the follow-up. Quick replies to inquiries convert more of the leads you already paid for.
- Raise the value of each customer. If customers stay longer or buy more, you can afford a higher CAC and still profit.
For more ways to win early customers on a small budget, see how to get your first customers.
Frequently Asked Questions
What is a good customer acquisition cost?
There’s no single good number. A good CAC is one that’s well below what a customer is worth to you. Many businesses aim for a customer’s lifetime profit to be at least three times their CAC.
Should I include my own time in CAC?
If you want the full picture, yes. Estimate the hours you spend on marketing and sales and put a fair hourly value on them. If you leave it out, be consistent so the trend still makes sense.
What’s the difference between CAC and cost per lead?
Cost per lead is what you pay for each inquiry. CAC is what you pay for each paying customer. If only one in four leads books, your CAC is about four times your cost per lead.
How often should I calculate CAC?
Monthly or quarterly works for most small businesses. Quarterly smooths out the ups and downs, especially if you only win a handful of customers each month.
Do repeat customers count in CAC?
No. CAC only counts new customers. Repeat business is part of customer lifetime value.
