Marketing FunnelvsCustomer Acquisition Cost (CAC)

The marketing funnel maps the customer journey from first awareness to purchase. Each stage narrows — typically 100 visitors → 10 leads → 1 customer (a 1% visitor-to-customer rate). Understanding where people drop off is the fastest way to grow revenue without spending more on ads.

CAC is the total cost of convincing a potential customer to buy your product. This includes all marketing spend, sales team salaries, tools, and overhead directly tied to acquiring new customers. The formula: CAC = Total Sales & Marketing Spend ÷ New Customers Acquired. A company spending $50K/month on marketing and sales and acquiring 100 customers has a $500 CAC. CAC varies dramatically by channel — paid ads might be $300 CAC while organic content is $30. VCs obsess over CAC because it determines unit economics: if CAC exceeds LTV, every customer you acquire destroys value.

Most teams obsess over the top of funnel (more traffic!) while their middle-of-funnel conversion is 2%. Doubling your landing page conversion from 2% to 4% has the same effect as doubling your traffic — at zero additional cost. Always optimize the leakiest stage first.

The most dangerous mistake is calculating 'blended CAC' by averaging all channels together. This hides the fact that your Google Ads channel might have a $200 CAC while organic has a $5 CAC. Blended CAC at $100 looks fine — but if you scale by doubling ad spend, CAC doesn't stay at $100; it approaches $200 because you're scaling the expensive channel. Always track CAC per channel. The second trap: excluding sales salaries from CAC. If you have 4 sales reps at $10K/month each and they close 40 deals/month, that's $1,000 in 'hidden' CAC per customer on top of marketing spend.

Map your funnel with real numbers: Visitors → Signups → Activated → Paying. Calculate the conversion rate between each stage. The stage with the lowest conversion rate is your #1 priority. A healthy SaaS funnel converts 2-5% of visitors to signups and 20-40% of signups to paying.

Calculate CAC by channel: Paid CAC, Organic CAC, Referral CAC, Outbound CAC. For each: total spend on that channel ÷ customers from that channel. Kill channels where CAC > LTV/3 (not LTV/1 — you need margin for overhead). Track CAC trend monthly — increasing CAC often means market saturation or competitive pressure and requires immediate investigation.