What it means
CAC is a single number that captures how much your business spends to get one new customer. The formula is straightforward: total acquisition costs (ad spend, sales team salaries, marketing tools, agency fees) divided by the number of new customers acquired in the same period.
The hard part is what counts as 'acquisition costs'. Strict definitions include ads only. Looser definitions include everything from content production to sales-rep commissions. The number you report depends on which definition you use, so consistency over time matters more than the absolute value.
Why it matters
CAC paired with LTV gives you the only honest answer to whether your business model works. LTV greater than 3x CAC is the rough rule for healthy SaaS economics. Below 1x CAC, you are paying customers to take your product.
CAC is also the single biggest lever in growth strategy. Reducing CAC by 30 percent through better targeting, AI agents, or organic channels often does more for the bottom line than equivalent revenue growth.
Example
A property agency spends SGD 50,000 a month on Meta ads and a 4-person sales team (around SGD 30,000 fully loaded). That is SGD 80,000 a month on acquisition. They close 25 new clients a month. CAC equals SGD 3,200. Their average client signs a 12-month contract worth SGD 18,000. LTV/CAC ratio is 5.6x. Healthy.