Customer Acquisition Cost (CAC)
Definition
The average cost of winning a new customer, including sales and marketing spend divided by the number of customers acquired. It is central to judging the efficiency of growth.
Formula
CAC = Sales and marketing spend ÷ New customers acquired
Related Terms in Financial Analysis
Churn Rate
The percentage of customers or recurring revenue lost over a period. Low churn is critical for subscription businesses, where retained customers compound into predictable revenue.
Gross Margin vs Net Margin
Gross margin measures profitability after only the direct cost of goods sold, while net margin is after all expenses, interest and tax. The gap between them shows the weight of operating and financing costs.
Liquidity Ratios
A family of ratios — current, quick and cash ratios — that measure a business's ability to meet short-term obligations from its short-term assets. They are early warning signs of cash trouble.
Solvency Ratios
Ratios such as the debt ratio, gearing and interest coverage that assess whether a business can meet its long-term obligations and survive beyond the short term. They focus on capital structure and debt capacity.
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