Barry owns a small business. He spent $15,000 on marketing expenses and $5,000 in sales costs last year. He obtained 1,000 new customers. What is his CAC?

• A. $10
• B. $20
• C. $12
• D. $8

Answer: (B)

CAC is the amount a business spends to acquire a single new customer. To find it, add all costs tied to acquiring customers and divide by the number of new customers gained. Here, marketing costs are 15,000 and sales costs are 5,000, totaling 20,000. With 1,000 new customers, CAC = 20,000 ÷ 1,000 = 20. So it costs $20 to acquire each new customer. This metric helps gauge the efficiency of marketing and sales spend; if CAC is too high relative to the revenue or value a customer brings, you’d look to optimize spend or improve conversion. Note that using only marketing or only sales costs would understate CAC, since the full acquisition effort combines both.