How to (Actually) Calculate CAC — Beyond the Basic Formula

Andrew Chen’s detailed framework for calculating customer acquisition cost correctly. The basic formula (Total Marketing + Sales / New Customers) is misleading without addressing three key questions.

CAC vs. CPA

CAC measures cost to acquire a paying customer. CPA measures cost to acquire a non-customer action (registration, activated user, trial, lead). They are related but completely different metrics. CPA tracks leading indicators to CAC.

Three key questions

1. What is the time lag between spend and acquisition?

If average time from lead to customer is 60 days, you can’t divide this month’s spend by this month’s customers. Adjusted formula:

CAC = (Marketing Expenses (n-60) + 1/2 Sales (n-30) + 1/2 Sales (n)) / New Customers (n)

2. What expenses to include?

Three common mistakes:

• Not including salaries — must include all people working on marketing/sales, including partial-time managers. “Fully Loaded CAC” includes salaries; “Non-Loaded” excludes them.
• Not including overhead — rent, equipment allocated to marketing/sales employees
• Not including tools — the marketing/sales tool stack adds up

Freemium edge case: if the free product is the primary acquisition method, should engineering/PM/support costs for the free product be included? Chen says yes.

3. Are you mixing new and returning customers?

Including all customers (new + returning) in the denominator while only counting new-customer acquisition expenses in the numerator makes CAC look artificially low. Fix: either include all expenses and all customers, or separate new from reactivated in both numerator and denominator.

Connects to SaaS metrics, pricing strategy, growth.

Open questions

• How does this framework change for product-led growth where “marketing spend” is mostly product/engineering?
• At what stage should a startup switch from simple to fully-loaded CAC tracking?