How to Set a Customer Acquisition Cost (CAC) Target

To establish how to best set a customer acquisition cost (CAC) target, it’s important to start with a foundational truth: efficiency and growth are opposing forces. 

The opposing nature of growth and efficiency means that you cannot maximally pursue both at the same time. Rather, for a given point in time, you must maximally pursue one while treating the other as a constraint.

In other words, you have two mandates to choose from:

Path #1: Maximize growth without compromising efficiency beyond X

If you go over your CAC constraint, you’ve emphasized growth too much. 

Conversely, if your CAC is lower than the constraint, you’ve left growth on the table and violated your “maximize growth” mandate.

"Treating CAC as a KPI to always minimize is one of the most common mistakes I see leaders make. If growth is the mandate, a CAC that’s too low is a problem, not a victory." —Tyler Elliston

Path #2: Maximize efficiency without compromising growth beyond Y

If, while increasing efficiency (pushing down CAC, for example), your customer growth is below the constraint, you’ve cut too deep. We see this regularly with top-down mandates to cut CAC by X% without any analysis for the negative impact on growth.

Alternatively, if the mandate is efficiency and customer growth exceeds the constraint, you haven’t gotten efficient enough. 

It’s important to note that when we consider the cost per customer in these scenarios, I am talking about the marginal cost of the next acquired customer, not the average cost per customer of a large cohort.

Let’s assume you determine you want to grow as much as possible as long as CAC is $100 or less. You acquire 50 customers at $95 each. You conclude that you could grow a little bit more, so you get 50 more customers and now your average CAC across the $100 customers is $100. 

Good, right? Nope. 

If the average across the 100 was $100, that means the second cohort of 50 customers you acquired actually cost $105 each, violating your marginal CAC constraint.

The question you should have asked is, “Can I acquire one more customer for $100?” and do so as long as it’s true.

Choosing growth as a goal or a constraint

Use periodization to avoid conflicting priorities

The concept of periodization is helpful here.

Imagine you are a runner training for a race. You need to increase your endurance and speed. For a particular run or period of time, you focus on one or the other. Later, you switch. Definitionally, if you exhaust yourself on a run because you are pushing your speed limit, you cannot push your endurance limit on the same run. Over time, you will indeed improve both, but not at the same time.

The same is true for weightlifting—cutting and bulking—and countless other applications. 

So the question to ask yourself about setting your CAC target is: should it be the goal or the constraint for this period? Here are a few rules of thumb:

• High product/market fit and low market share—likely a growth focus
• High product/market fit and high market share—likely an efficiency focus
• Low product/market fit—focus on getting product/market fit

The more product-market fit you have and the less market share you have, the more focused on growth you should be. Conversely, high market share typically leads to greater focus on efficiency. If you have low product-market fit, then improving that is the goal, not growth or efficiency. 

Even when a company is in a “growth-focused” period, it’s not uncommon to have phases focused on efficiency. I recommend changing the focus no more frequently than quarterly, outside of ground-shifting evolutions in the business. It’s quite hard to shift between growth and efficiency seamlessly, and it takes time to see the impact of one’s changes, for either goal.

It’s a sign of dysfunction when teams receive frequent—weekly or even daily—top-down mandates to change the goal or constraints based on subjective or exogenous factors rather than a data-driven approach with cross-functional buy-in. 

The premise of this “one or the other” argument is that you cannot pursue either maximally unless the other is a constraint instead of a second goal.

What if the mandate is not to pursue either maximally, and instead pursue each to a degree as directed? Conceptually, this is fine. However, in practice it leads to micromanagement of performance marketing by leaders who typically lack the detailed context and trade-offs to provide such specific guidance. 

How to calculate values for efficiency targets

Check out our guide to learn whether you should optimize to CAC, ROAS, or something else, and how to calculate these “well”.

Setting the right CAC target is just one piece of a winning growth strategy. Whether you're scaling efficiently or maximizing acquisition, we help brands strike the right balance to drive sustainable growth. Let's build a smarter, more profitable path forward—get in touch today.