Customer acquisition cost (CAC) is the average amount you spend to win one new customer. Add the ads, the tools, the discounts, and the hours your team spends following up, then divide by the new customers in that period.
It is the pair of customer lifetime value. LTV is what that customer brings in over time. CAC is what you paid to get them in the door. If CAC stays higher than LTV, growth is a leak. Churn makes it worse: you pay again to replace people who left. Track both in analytics and a CRM as KPIs next to ROI. A lead who never buys still sits in the spend. The funnel shows where the money went; conversion is the step that turns spend into a customer.
A real-life example of customer acquisition cost
A Decatur florist runs Instagram ads and spends Saturday mornings quoting weddings. The new clients who book are the win. The ads, the samples, and those Saturdays are the cost. If they order once and disappear, CAC ate the margin. If they come back for anniversaries, lifetime value can cover the spend.
Price the channel against repeat business, not against a single ticket. How-to: Customer Retention for Small Business and How to Read Business Data.