business
Customer Acquisition Cost (CAC)
The total cost of acquiring one paying customer, including advertising spend, marketing overhead, and onboarding costs.
Customer Acquisition Cost (CAC) represents the full expense of converting a prospect into a paying customer. Unlike Cost Per Install (CPI), which only measures the price of getting a download, CAC includes all costs along the funnel - from ad spend and creative production to onboarding flows and sales efforts. Calculate it by dividing total acquisition-related costs by the number of new paying customers gained during that period.
CAC vs. CPI
CPI measures what it costs to get someone to install your app, while CAC measures what it costs to turn someone into a paying customer. Since only a fraction of installs convert to paying users, CAC always exceeds CPI. For example, if your CPI is $2 and 10% of installs become paying users, your CAC is $20. This distinction proves essential for building accurate financial models and setting realistic growth budgets.
Managing CAC Effectively
A sustainable business requires that Lifetime Value (LTV) exceeds CAC by a healthy margin. Most benchmarks target an LTV-to-CAC ratio of at least 3:1. To lower CAC, improve conversion rates at every funnel stage, invest in organic channels like ASO, and refine audience targeting for high-intent users. Audit acquisition channels regularly and cut underperformers to keep overall costs in check.