Customer Acquisition Cost (CAC).

The basic formula is short: marketing and sales costs in a period divided by the number of new customers in the same period. The difficult part is deciding what counts as cost. It includes advertising budgets, agency fees, marketing and CRM software, trade fairs, print and, above all, the working time of the people doing the acquiring. Small businesses in particular tend to forget their own time, even though it is often the largest item. Leave it out and customer acquisition looks better than it is.

CAC is often confused with related metrics. Cost per lead (CPL) measures the cost up to the enquiry; cost per acquisition (CPA) in advertising usually means the cost per conversion of a campaign, which may be a purchase but may also be a form. CAC goes further: it covers all channels and costs and only ends with a paying customer. The sales team's close rate sits between CPL and CAC.

On its own, CAC says little. Whether a new customer was won too expensively only becomes clear when compared with customer lifetime value (CLV), the contribution margin a customer brings over the whole relationship. If CLV is well above CAC, growth through paid channels is sustainable. If it is below, the business earns less from every new customer than it spends winning them. How long a customer stays is directly affected by the churn rate.

It is worth calculating CAC per channel as well as overall. That requires clean attribution of where each customer came from, for example through conversion tracking and a source field in the CRM. With longer sales cycles there is also a time lag: advertising in January may only bring an order in April. Calculate over quarters or half-years rather than individual months.