Level 5 · What a new customer costs

The cost side of a customer

Customer acquisition cost (CAC) is what it costs to win one new customer:

CAC = acquisition spend in a period / new customers acquired in that period

LTV says what a customer is worth; CAC says what one costs. A business that pays more to acquire a customer than the customer is worth shrinks with every sale.

Blended CAC

The simplest version divides all marketing spend by all new customers. That is blended CAC. At Harbor & Pine:

#    year      spend  new_customers     cac
# 0  2023  382190.45            574  665.84
# 1  2024  441894.83            525  841.70
# 2  2025  510641.32            641  796.63

The numerator and the denominator must cover the same period, and the denominator is new customers: people whose first booked order falls in the year. Customers who were already buying were not acquired by this year’s spend.

Why not paid-only CAC?

Paid search is $340,778.33 of the 2025 spend. It is tempting to divide it by the customers who came “from ads”. But Harbor & Pine only knows a customer’s channel from a signup question: 47 new customers in 2025 answered google_ads, and 209 left it blank. Divide paid spend by 47 and paid CAC comes out at $7,250.60, which is mostly a measurement of who fills in forms. Channel-level CAC needs proper attribution (chapter 3); until then, blended CAC is the defensible number, labelled as blended.

What blended CAC hides

• Spend that is not acquisition. Email goes mostly to existing customers. Including it raises CAC; excluding it requires a judgement you should write down.
• Organic customers. Friends and search bring customers for free, which lowers blended CAC and makes paid media look cheaper than it is.
• Timing. Spend in December can bring customers in January. Annual periods soften this; monthly CAC is noisy for this reason.
• The first year of data. 2023 counts long-time customers who first show up in the data as new, so its CAC is too low.

Interview note

When asked how you would calculate CAC, give the formula, then say which spend you included, how you defined a new customer and whether it is blended or per channel. Interviewers listen for the definitions more than the division.