CAC · payback · LTV to CAC
Customer acquisition cost, what each new customer really costs
Customer acquisition cost (CAC) is what you spend on sales and marketing to win one new customer.
This guide covers the CAC formula, the payback period, the LTV to CAC ratio, a worked example and the levers that bring CAC down.
Reviewed by Dan Keegan, GTM Quest · 25 October 2026 · 2 sources linked below
CACthree numbers
- 01CACCOSTSALES AND MARKETING ÷ NEW CUSTOMERS
- 02PaybackMONTHSTIME TO EARN CAC BACK
- 03LTV to CACRATIOVALUE PER POUND SPENT
LTV to CAC ratio: David Skok’s rule of thumb3x
01/ the formula
Customer acquisition cost formula and what to include
Customer acquisition cost is the total cost of sales and marketing in a period divided by the number of new customers won in that period, as David Skok sets it out in SaaS Metrics.
CAC = total sales and marketing cost ÷ new customers won.
Skok describes two versions: one counting only marketing programme spend, and a fully loaded one that adds the people and other costs of running sales and marketing.
Use the fully loaded figure for decisions; the programme-only figure flatters channels that rely on expensive sellers.
02/ worked example
A CAC example one quarter, in pounds
An illustrative B2B software company.
The numbers are invented to show the arithmetic.
On the fully loaded figure, this company recovers CAC inside Skok’s 12-month rule; the programme-only figure would make it look more than three times cheaper than it is.
03/ payback
CAC payback period months to earn it back
The CAC payback period is how many months of a customer's revenue it takes to recover what you spent to win them.
Divide CAC by the monthly revenue a new customer brings in; for a stricter test, use monthly gross margin instead of revenue.
Skok's rule is that start-ups need to recover the cost of customer acquisition in less than 12 months.
A long payback ties up cash: every new customer is a loan you make to yourself until month twelve or later.
04/ ratio
LTV to CAC ratio value per pound spent
The LTV to CAC ratio compares what a customer is worth over their lifetime with what it cost to win them.
Skok's rule of thumb is that LTV must be at least three times CAC.
A ratio well below that means you are paying too much for customers or losing them too soon; a ratio far above it can mean you are under-investing in growth.
For how to work out the top half of the ratio, see how to calculate customer lifetime value.
05/ the levers
How to reduce customer acquisition cost in B2B
01
Aim at fewer, better accounts
A tight ideal customer profile raises win rates, and CAC falls when the same spend wins more deals.
02
Measure CAC by source
Outbound, ABM, paid and referral each have their own CAC.
Cut the expensive one, not the average.
03
Shorten the sales cycle
Seller time is often a large part of B2B CAC.
Map the buying committee early: Forrester counts 13 internal stakeholders in a typical purchase.
See sales velocity.
04
Keep customers longer
Retention does not lower CAC, but it raises LTV and so the ratio.
Expansion inside existing accounts costs less than a new logo.
06/ GTM Quest
CAC in a go-to-market system one data layer, every source
CAC is only useful if every opportunity carries its source and every cost is in the same place.
As a London GTM agency, we build pipeline from named accounts on a data layer you own, so CAC and payback can be read by channel each month.
15 minutes · video or phone
Lower CAC, by source
Book 15 minutes and we will look at where your customers come from and what each source costs.
- 0115 minutes, video or phone
- 02Your pipeline by source
- 03No forms, just a call
Pick a day that suits · live availability
07/ questions
Customer acquisition cost FAQ
Short answers to what people ask about CAC, payback and the LTV to CAC ratio.
The total cost of sales and marketing in a period divided by the number of new customers won in that period.
Add up sales and marketing costs for the period, including salaries for a fully loaded figure, and divide by the number of new customers won in the same period.
The number of months of a customer’s revenue, or gross margin, needed to recover what it cost to win them.
David Skok’s rule of thumb for start-ups is under 12 months.
David Skok’s rule of thumb is that lifetime value should be at least three times CAC.
For decisions, yes.
A fully loaded CAC includes the people who sell and market; a programme-only CAC counts only spend such as ads and events, and understates the real cost.
Narrow your ideal customer profile, measure CAC by source and cut the expensive ones, shorten the sales cycle and grow revenue from existing customers.
Taking on new clients
Know your CAC by source
Fifteen minutes is enough to see where we would cut cost first.
09/ sources
Every source on this page
Each figure above links to one of these. All were opened and checked on 25 October 2026.
- David Skok, SaaS Metrics, For Entrepreneursforentrepreneurs.com
- Forrester, The State of Business Buying, 2026forrester.com