Customer acquisition cost in plain English
CAC is what you pay, all in, to turn a stranger into a paying customer. Not a click, not a call, not a booked appointment: a customer who had the work done and paid for it.
It sits at the end of a chain. Spend buys clicks, clicks become leads, leads become booked jobs, booked jobs become paid invoices. Every leak along the chain raises CAC.
How do you calculate customer acquisition cost?
Formula
Two choices decide whether the number means anything: what goes in the top, and who counts at the bottom.
What goes in the numerator
| Include | Exclude |
|---|---|
| Ad spend (search, social, Local Services Ads) | Labor and materials on the job itself |
| Lead purchases from marketplaces | Marketing to existing customers and members (that's retention) |
| Agency, call tracking and marketing software fees | General overhead like rent and insurance |
| Direct mail, door hangers, vehicle wraps (spread over their life) | Warranty and callback costs |
| Marketing staff, and the share of CSR and sales time spent on new customers | Technician wages on the job |
Who counts as a new customer
A customer with a first completed, paid job in the period who had never paid you before. Not estimates, not booked appointments, and not past customers coming back.
Worked example: blended vs paid CAC
Example numbers for a year at a 12-tech plumbing and HVAC company:
| Line | Amount |
|---|---|
| Paid channels: ads, lead purchases, mailers | $48,600 |
| Marketing software, call tracking, agency | $7,200 |
| Share of CSR time on new-customer calls | $5,400 |
| Total acquisition costs | $61,200 |
| New paying customers, all sources | 340 |
| of which from paid channels | 230 |
| of which referrals, word of mouth, unknown | 110 |
- Blended CAC: $61,200 ÷ 340 = $180
- Paid CAC: paid-channel costs only, $48,600 ÷ 230 = $211
Both are true, and they answer different questions. Blended CAC tells you what growth costs overall; paid CAC tells you what you pay for customers you buy. If you only report blended, a strong referral year makes your paid channels look cheaper than they are. A quarter-by-quarter, channel-by-channel version of this calculation is in customer acquisition cost for contractors.
CAC vs cost per lead vs cost per booked job
| Divides spend by | Includes selling costs? | |
|---|---|---|
| Cost per lead | Unique inquiries | No |
| Cost per booked job | Jobs booked from those inquiries | Usually no |
| Customer acquisition cost | New customers who paid | Yes |
Each step down the table is larger, because each denominator is smaller. A channel can look cheap at the top and expensive at the bottom.
How do you judge whether CAC is too high?
CAC on its own is half a ratio. The other half is what the customer is worth.
Metric
CAC payback
How long a new customer's gross margin takes to repay what it cost to win them.
CAC ÷ gross margin per customer per month (or per job)
Where the numbers come from: Acquisition costs from marketing spend; margin from job costing on invoices.
For recurring customers, lifetime value is often estimated as average revenue per customer divided by churn rate; Stripe's billing analytics define subscriber lifetime value that way.1 For a contractor, use gross margin rather than revenue, and include members' repair work, which is where most of their value sits. The membership side of that math is in membership math: lifetime value and churn.
What lowers CAC?
| Lever | Why it works | How to check it |
|---|---|---|
| Answer faster | Paid leads that wait book with someone else | Booking rate by response time |
| Raise booking rate | Same spend, more booked jobs | Booked ÷ leads, by source |
| Raise close rate on estimates | More paying customers from the same visits | Close rate by tech and job type |
| Move budget to sources with cheap paid customers | Cuts channels that look good only on CPL | Paid CAC by source |
| Ask for reviews and referrals | Referrals carry little direct cost | Share of new customers from referrals |
| Send completed sales back to ad platforms | Lets Google bid toward leads that become paid work2 | Cost per paid customer before and after |
Google Ads offers last click and data-driven attribution; the data-driven model is the default for most conversion actions.3 Either way, ad platforms only see what you send them, which is why job-level attribution is the foundation of an honest CAC.
Common CAC mistakes
Check your CAC calculation for these
- Counting booked or estimated customers instead of paying ones
- Including repeat customers and members in the denominator
- Leaving people costs out of the numerator
- Comparing a quarter of spend with a different quarter of customers when sales lag spend
- Charging a vehicle wrap or website rebuild to a single month
- Reporting only blended CAC, so referrals hide expensive paid channels
Lag deserves a note. A homeowner who clicked an ad in March may not book a replacement until June. For channels with long decision times, compare spend and new customers over a rolling quarter or longer, so the timing gap evens out.
CAC in TradesWork
TradesWork connects the parts CAC needs: every lead and the job it becomes share a campaign, and reports can filter by campaign and marketing channel with each number opening to the jobs or invoices behind it. Your acquisition spend comes from your own books; TradesWork supplies the new customers and their revenue by source.
Footnotes
-
Stripe Docs, Billing analytics: metric definitions, subscriber lifetime value. ↩
-
Google Ads Help, About offline conversion imports. ↩
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Google Ads Help, About attribution models. ↩
