What Is Customer Acquisition Cost (CAC)?
By BRIX Editorial Team · Updated
Customer acquisition cost (CAC) is the total you spend on marketing and selling to win one new paying customer. Add up advertising, lead fees, sales labor, commissions and sales software for a period, then divide by the number of new customers won in that period. It tells you what growth really costs.
Key takeaways
- CAC = (marketing costs + sales costs) ÷ new customers won, for the same period.
- Include sales labor: the hours spent on estimates that didn't close are part of what each sold job cost.
- Count only new customers. Repeat customers and maintenance-plan renewals belong in a separate number.
- Judge CAC against what a customer is worth: aim for a lifetime value well above CAC, and know your payback time.
- Blended CAC (all customers, including referrals) is lower than paid CAC (ad-driven customers only). Track both.
How does customer acquisition cost work?
Customer acquisition cost answers a simple question: what did it cost me to get one new customer through the door? It goes further than cost per lead, which stops at the inquiry. CAC includes everything between the first ad and the signed job: lead fees, the time spent on the phone, the estimates you drove to and lost, commissions on the ones you won.
On its own, CAC is just a cost. It becomes useful next to what a customer is worth. A $600 CAC is terrible for a one-time $400 drain cleaning and excellent for a $14,000 roof. That's why CAC is always read with customer lifetime value and gross margin.
How do you calculate customer acquisition cost?
Calculate customer acquisition cost by adding all marketing and sales costs for a period (ads, lead fees, agency fees, sales wages and commissions, sales software) and dividing by the number of new customers who bought in that period. Use a month for fast-selling service work and a quarter for big-ticket jobs with long sales cycles.
CAC = (Marketing costs + Sales costs) ÷ New customers won
- Marketing costs
- ads, lead fees, mailers, directories, agency or SEO fees, truck wraps spread over their life
- Sales costs
- wages and commissions for estimating and selling, CSR time on new leads, sales and CRM software
- New customers won
- first-time customers who paid for a job in the period; not repeat customers or renewals
Run your own numbers with the customer acquisition cost calculator.
What is a good customer acquisition cost?
A good customer acquisition cost is one you earn back quickly from gross profit and that sits well below the customer's lifetime value. Two checks matter. First, LTV to CAC: lifetime gross profit divided by CAC. Second, payback: how many jobs or months of gross profit it takes to cover CAC. For one-time jobs, payback should happen on the first job.
LTV:CAC = Lifetime gross profit ÷ CAC | Payback = CAC ÷ Gross profit per job (or per month)
- Lifetime gross profit
- gross profit from all the customer's jobs over the years they stay
- Gross profit per job
- job revenue minus materials and direct labor
Software companies often use 3:1 as a target LTV-to-CAC ratio. That's a convention from subscription businesses, not a rule for trades. A recurring lawn or pest customer can justify a CAC that takes several months to pay back. A one-time roof or fence customer should cover CAC on the first job, because there may not be a second.
Customer acquisition cost by trade
| Trade | How customers buy | How to judge CAC | What lowers CAC |
|---|---|---|---|
| HVAC | Repairs, then replacements and maintenance plans | First repair may not cover CAC; plan sign-ups and replacements should | Selling maintenance plans on the first visit |
| Plumbing | Mostly repair and emergency; occasional big jobs | Payback on first job or within the first year | Answering emergency calls live; reviews |
| Roofing | One-time, high ticket | Must pay back on the first job | Referrals and neighborhood signs after each job |
| Electrical | Mixed service and project work | Payback on first job for projects | Builder and contractor referral relationships |
| Landscaping and lawn care | Recurring weekly or seasonal | Payback within the first season; LTV over several years | Route density: winning neighbors of existing clients |
| Cleaning | Recurring biweekly or monthly | Payback within the first few cleans | Keeping recurring clients past the first month |
| Pest control | Recurring quarterly plans | Payback within the first year | Converting one-time calls into plans |
CAC vs. cost per lead
Cost per lead covers only the price of an inquiry. CAC covers everything it took to turn inquiries into a paying customer, so it reflects your booking rate, your close rate and the sales time in between. If cost per lead is flat but CAC is rising, the problem is in how leads are handled, not in the marketing.
How do you lower customer acquisition cost?
- Answer and follow up every lead. Leads you paid for and never reached raise CAC with nothing to show. See speed to lead.
- Close more of the estimates you already run. A planned estimate follow-up costs almost nothing per job won. See how to follow up on an estimate.
- Cut channels that don't produce customers. Lead source tracking shows CAC by source.
- Grow referrals and reviews. They bring customers at a fraction of paid CAC. Automate review requests.
- Qualify on the phone. Don't drive to estimates for jobs you won't win. See how to qualify leads over the phone.
Common CAC mistakes
- Leaving out sales labor. Your estimator's or your own time on lost bids is a real cost of the jobs you win.
- Counting repeat customers as new. It makes CAC look lower than it is.
- Mismatched periods. A spring ad campaign may produce jobs in summer. Use a quarter for slow-closing work.
- Only using blended CAC. Referrals cost almost nothing, so they make paid marketing look cheaper. Use paid CAC for ad budget decisions.
- Comparing CAC across trades. A roofer's and a cleaner's CAC can't be compared. Compare CAC with your own customer value.
Frequently asked questions
How do you calculate customer acquisition cost?
Add all your marketing and sales costs for a period, including ads, lead fees, sales wages, commissions and sales software. Divide by the number of new customers who paid for a job in the same period. If you spent $10,000 and won 25 new customers, CAC is $400.
What is a good CAC for a contractor?
One that is well below the customer's lifetime gross profit and that you earn back quickly. For one-time jobs like roofing, CAC should be covered by the first job's gross profit. For recurring services like lawn care or pest control, payback within the first season or year is reasonable.
What is a good LTV to CAC ratio?
Subscription software companies commonly aim for about 3:1, but that's a convention, not a trades rule. What matters for a trades business is that each new customer earns back their acquisition cost from gross profit, with enough left over to cover overhead and profit.
Should I include my own time in CAC?
Yes, if you do the estimating and selling. Put a fair hourly value on the time you spend on calls and estimates for new customers. Otherwise CAC will look low until the day you hire someone to do it.
What's the difference between CAC and cost per acquisition?
They are often used interchangeably. In advertising, cost per acquisition usually means ad spend divided by conversions on one platform. Customer acquisition cost is broader and includes all marketing and sales costs across every channel.
Why is my CAC going up?
Common causes are rising ad prices, more missed or slow-handled leads, a lower close rate, or more of your spend going to channels that send low-quality leads. Compare cost per lead, booking rate and close rate month to month to see which step changed.
Related
- Customer Acquisition Cost CalculatorFree CAC calculator for contractors: find what each new customer costs in marketing and sales, how many jobs it takes to pay back, and your CLV:CAC ratio.
- What Is Customer Lifetime Value (CLV)?Customer lifetime value is the profit a customer brings over every job they ever buy. See the CLV formula, an HVAC example, retention math and trades.
- What Is Cost Per Lead?Cost per lead is marketing spend divided by leads. See the formula, why cost per booked job matters more, and how CPL behaves across trades and channels.
- What Is Lead Source Tracking?Lead source tracking records where every call and form came from so you can see which marketing pays. How to set it up, what to measure and what to avoid.
- What Is Close Rate?Close rate is the share of estimates you sell. Learn the count and dollar formulas, see contractor examples by trade, and what a too-high close rate means.
- What Is Gross Margin?Gross margin is the share of revenue left after direct job costs. The formula, what counts as COGS for trades, and why service and install margins differ.
- Customer Lifetime Value CalculatorFree CLV calculator for trades businesses: see what a customer is worth in lifetime revenue and gross profit, and how much you can spend to win one.
- Lead Follow-Up Automation That Chases Every Lead and Estimate for YouAutomatic text and email follow-up for every lead and open estimate, so quotes don't go cold while you're on jobs. Built for trades businesses.
- How to Grow a Home Service Business from $500K to $2MA $500K to $2M growth playbook for home service owners: revenue math, leads, booking and close rates, ticket size, memberships, hiring, systems, cash.
- Booking Rate and Close Rate CalculatorFree booking rate and close rate calculator for home service pros. See your lead-to-sale rate and what better booking or close rates are worth a year.