CAC, or customer acquisition cost, is total sales and marketing spend divided by the number of new customers acquired in that period, the average cost to win one new customer.
CAC only means something next to a second number: how much revenue that customer generates over time (their lifetime value, or LTV). A business can survive a high CAC if the customer sticks around and pays enough over time to justify it, and a low CAC doesn't help if customers churn out before the company recoups the cost of acquiring them.
Investors commonly look for an LTV-to-CAC ratio of at least 3-to-1 as a rough sign of a sustainable model, though the right ratio varies by business type, and how quickly CAC is recovered matters as much as the ratio itself. A company that takes three years to pay back its CAC has a very different cash profile than one that pays it back in three months, even at the same ratio.
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