What formula is used to determine a company's CAC?

• A. Marketing expenses + sales expenses / the number of new customers for the period
• B. Marketing expenses + sales expenses + the number of new customers for the period
• C. Marketing expenses - sales expenses / the number of new customers for the period
• D. Marketing expenses - sales expenses x the number of new customers for the period

Answer: (A)

Customer Acquisition Cost (CAC) measures how much a company spends to obtain each new customer. To calculate it, you take all the costs tied to acquiring customers—typically the marketing expenses and the sales expenses—and divide that total by the number of new customers gained in the same period. This directly shows the average amount spent to bring in one new customer.

For example, if marketing costs are $40,000 and sales costs are $15,000, and you acquire 500 new customers, CAC = (40,000 + 15,000) / 500 = $110 per new customer.

Using only marketing costs or only sales costs would miss part of the investment, and subtracting or multiplying these costs by the number of new customers would not reflect the actual cost per new customer. The chosen formula correctly measures the spend required to acquire each new customer.