What is customer acquisition cost, and how do I work out mine?

Where the definition comes from

An investor and an investment firm have each written the sum down on their own sites, and they agree on it.

Both say the full cost. Skok counts customers. Andreessen Horowitz writes users, and on a product with a free plan those are different people. This page counts paying customers.

How to work it out, step by step

1. Pick a period, such as one calendar month. If buying takes a trial or a call, make it long enough to hold both the spend and the sales it led to.
2. Add up everything you spent in that period to win customers. The next section lists what goes in.
3. Count the people who paid you for the first time in that period. Not visitors, not signups, not free users.
4. Divide the cost by the customers. The formula in words: marketing and sales spend, divided by new paying customers, both from one period.
5. Do it again for each channel alone: what that channel cost, divided by the customers who came from it.

If nobody paid in the period, there is no acquisition cost to state. Record the spend beside a zero. Dividing by signups gives a figure with another name.

What goes into the cost, and what founders leave out

• Ad spend. What the ad platforms charged you in the period.
• Tools. Anything you pay for because of marketing, such as an email tool or a paid directory listing.
• People. Skok's sum includes salaries and other headcount costs. A freelancer, an agency or a creator you paid goes in.
• Giveaways. Andreessen Horowitz names leaving out referral fees, credits and discounts as a common problem.
• Your own time. A founder working alone pays no salary, so the sum misses the hours. Skok adds that a pure web business may also look at the cost without headcount. So keep two figures, the money and your hours. That is this page's advice, not his. In the example above, 20 hours of your own work makes it $60 and 2 hours a customer.

The mistakes a new founder makes

• Calling cost per signup an acquisition cost. Skok's own example: a click costs 50 cents, 5% of visitors start a trial and 10% of trials pay. Divide it through and a trial costs $10. A customer, as his sheet shows, costs $100. He adds that the $100 leaves out marketing staff and website costs. The step between the two figures is a conversion rate.
• Letting free customers hide what the paid ones cost. Andreessen Horowitz separates two figures. Blended divides the total cost by every new customer. Paid divides it by only the customers who came through paid marketing. In the example above, if 4 of the 10 customers came from the ads and 6 from a free post, blended is $60 and paid is $600 divided by 4, which is $150. The list says blended is not wrong, but it does not show whether paid campaigns are profitable.
• Reading a figure built on two or three customers. At $600 and 2 customers the cost is $300. One more sale makes it $200. Say how many customers the figure rests on whenever you state it.
• Expecting it to hold as you spend more. The same list says costs tend to go up as you try to reach a larger audience.

What to set it beside, and where it matters

Set the figure beside what a customer pays you over their time with you, their lifetime value. Skok gives two guidelines for a business with recurring revenue, and calls them a very rough rule of thumb: a lifetime value of about 3 times the acquisition cost, and the cost earned back in under 12 months. They are one investor's guidelines, not a measured average. This page states no average, because neither source measures one.

The figure matters most on paid channels, where every customer has a price: Google Ads, Meta Ads, Reddit Ads and TikTok Ads. Should I run ads before anyone has paid? covers whether to test at all.

A low acquisition cost does not rescue a product people do not want. Skok opens his essay by calling the cost of acquiring customers what he believes is the second biggest cause of startup failure, behind a failure to reach product market fit.

How Sami uses it

Sami works from the numbers you give it and the records AskSami keeps. Once you sign up, what you spent comes from the ad exports and screenshots you hand over, and each becomes a dated record. Who paid comes from your own payment webhook, tied to its source where the snippet in your product recorded one. A payment with no recorded source is kept as unknown, never guessed.

With spend and payments both on record, Sami sets one beside the other, channel by channel. Where one is missing, Sami says it has no data and does not invent a figure. A paid step in the plan gets one week if your product is bought on the page.