Customer acquisition cost is the number that tells you whether your marketing is an investment or a leak.
Divide everything you spend on winning customers by the number of customers you won. If you spend £2,000 a month on marketing and sales and win 10 customers, your CAC is £200.
The number only means something next to two others. LTV:CAC compares what a customer is worth over their lifetime against what they cost to acquire. A ratio of 3:1 or better is the widely used benchmark for a healthy business, and below 1:1 means you lose money on every customer you win. Payback period is how many months of that customer's gross profit it takes to recover the acquisition cost; under 12 months is comfortable for most small businesses, because it is cash you can recycle into winning the next one.
Use a typical month.
Here is exactly what the tool does with your numbers.
| Metric | Formula |
|---|---|
| CAC | (marketing + sales cost) ÷ new customers |
| Gross profit per order | average order value × gross margin |
| Lifetime value | gross profit per order × purchases a year × years retained |
| Payback | CAC ÷ monthly gross profit per customer |
Lifetime value is measured in gross profit, not revenue. Using revenue is the most common way to make these numbers look far better than they are. A £500 order at 60% margin contributes £300, not £500.
The model uses simple undiscounted lifetime value, which is the right level of precision for most small businesses. If your customer relationships run beyond about five years, consider discounting future profit to present value.
There is no universal figure, because CAC only means something relative to what a customer is worth. A £500 CAC is excellent if customers are worth £5,000 and ruinous if they are worth £400.
Use the LTV:CAC ratio instead. A ratio of 3:1 or better is the widely used benchmark for a healthy business. Below 1:1 you lose money on every customer you acquire.
Three to one is the common target: a customer returns three times what they cost to win, leaving room for overheads and profit. Much above 5:1 often means you are underinvesting in marketing and leaving growth on the table.
Always calculate lifetime value using gross profit rather than revenue, otherwise the ratio flatters you by the size of your cost of sale.
Everything spent to win new customers: advertising, agency and freelancer fees, content production, marketing software, event costs, and the salaries or commission of anyone doing marketing and sales. If you do the selling yourself, include a realistic cost for your time.
Exclude the cost of delivering to existing customers and general overheads like rent, which belong in gross margin and fixed costs.
Because ratios do not pay wages. A business can have an excellent 5:1 ratio and still run out of cash if that value takes four years to arrive while the acquisition cost is paid today.
Payback measures how quickly the money comes back so you can spend it again. Under 12 months means growth largely funds itself; much beyond that and scaling requires external cash.
Built by Veris Labs
These calculators are a small, public version of what we do. The Veris Labs suite covers marketing and delivery, and where nothing off the shelf fits, we build it around your business instead.
