What does CAC stand for in startup metrics?

• A. Marketing and sales cost per acquired customer.
• B. The total lifetime value of a customer.
• C. Average monthly revenue per user.
• D. Cost of product development per customer.

Answer: (B)

CAC stands for the money a startup spends to acquire a new customer. It captures all marketing and sales costs—ads, salaries, software, agencies, events—over a given period and divides that total by the number of customers gained in the same period. This figures out how efficiently you’re turning spend into customers.

It’s different from what a customer contributes over time. The value a customer brings is the lifetime value, not the acquisition cost. Measuring CAC alongside lifetime value (LTV) is crucial for understanding profitability and growth pace. For example, if you spend $20,000 in a month and gain 200 customers, CAC is $100 per customer. If each customer generates $500 in value over their lifetime, you’re looking at a healthy LTV/CAC, indicating strong unit economics. If CAC is too high relative to LTV, you’d reconsider your marketing mix, pricing, or sales approach.