Key takeaways
- CAC divides sales and marketing spend by new customers won in the same period.
- For a sales-led team, salaries and commission are usually the largest part.
- Leaving out people costs makes CAC look far cheaper than it is.
- CAC payback shows how long a new customer takes to cover what they cost to win.
What is the CAC formula
The CAC formula is total sales and marketing cost for a period divided by the number of new customers won in that period. With illustrative figures, a quarter that costs 150,000 and brings 30 new customers has a CAC of 5,000.
Use the same period for both sides and count only new customers. Existing customers who expand belong in a separate measure, or CAC stops meaning what its name says.
What goes into CAC for a sales-led team
For a sales-led team, CAC includes everything spent on finding and closing new customers, people first. A fully loaded CAC counts all of it; a paid CAC counts only advertising and media, which is useful for marketing but not for judging the whole model.
- Salaries, commission and bonuses for sellers, SDRs and their managers.
- Marketing salaries and the share of agencies and contractors spent on acquisition.
- Advertising, events, sponsorships and content production.
- Sales and marketing tools: CRM, data, email, research and call recording.
- The time sales engineers and founders spend on new deals.
Which mistakes make CAC look too low
The mistakes that make CAC look too low mostly leave costs out or count too many customers in. They are worth checking before the figure reaches a board pack.
- Counting only paid media and leaving out salaries.
- Counting expansion deals or returning customers as new customers.
- Comparing this quarter's spend with this quarter's wins when deals take two quarters to close.
- Blending very different segments, so cheap small deals hide expensive large ones.
- Counting free sign-ups or trials as customers.
What is CAC payback
CAC payback is the number of months a new customer takes to earn back what they cost to win. Divide CAC by the monthly recurring revenue from that customer multiplied by your gross margin.
With illustrative figures, a CAC of 5,000, a customer paying 500 a month and a gross margin of four fifths gives 5,000 divided by 400, or a payback of twelve and a half months. Shorter payback means growth needs less cash up front.
How is CAC different from cost of sales
CAC is the cost of winning a customer; cost of sales is the cost of delivering what you sold. The names sound alike, which causes confusion in finance conversations.
Cost of sales covers hosting, support and the people who deliver a service, and it sits above gross margin in the accounts. CAC sits in sales and marketing expenses below it.
Where Pebbles Ai fits
Common questions
Should CAC include salaries?
Yes, for a fully loaded CAC. For a sales-led team, salaries and commission are usually the largest acquisition cost, so leaving them out hides most of the spend.
What is blended CAC?
Blended CAC combines every channel and segment into one figure. It is simple to report but can hide a channel or segment that costs far more than the average.
How often should you calculate CAC?
Quarterly suits most teams, with a lag that matches the sales cycle. Monthly figures swing too much when a few large deals land or slip.
About this page. Written by the Pebbles Ai team for people who run sales, marketing and growth. Last updated .
