Translation: Customer Acquisition Cost (CAC) = Customer acquisition cost.

Simple definition: It is a financial metric that shows how much money a company spends to persuade a new customer to purchase its product or service. In other words, it is the total amount the company spends on advertising, promotional offers, marketing campaigns, and sales commissions, divided by the number of new customers who joined the company as a result of these efforts. In business, people say that a new customer is not free, and that every user has a “price tag” the company paid to acquire them.

How is it calculated? It is calculated directly by adding up all sales- and marketing-related expenses incurred during a specific period, such as a quarter, and then dividing them by the number of new customers acquired during the same period. Mathematically, it is written as follows: Customer acquisition cost = Total marketing and sales expenses / Number of new customers.

Real-world example (delivery apps and Dheeb’s contract): Imagine a delivery app such as “HungerStation” or “Jahez.” During periods of expansion, these companies spend millions of riyals on roadside billboards and offer coupons, such as free first deliveries. If a company spends SAR 100,000 in one month on these campaigns and successfully attracts 2,000 new customers who place their first orders, its customer acquisition cost is SAR 50 (100,000 divided by 2,000). The company has essentially “bought” each customer for SAR 50. By contrast, an analysis of Dheeb’s latest contract with HungerStation shows that Dheeb did not have to incur any marketing costs because the customer was already ready and already existed. This means that the “acquisition cost” under this contract is zero, which significantly supports and improves Dheeb’s operating margins.

What does it mean for you?

Management efficiency and spending: If a company spends huge amounts on marketing but the number of new customers does not grow proportionally to that spending—that is, if acquisition cost rises sharply—this indicates that money is being wasted on unsuccessful campaigns or that intense competition in the sector is eroding profit margins.

Brand strength: Companies whose acquisition costs gradually decline are often companies with highly loyal customers and a strong brand that sells itself through word-of-mouth recommendations, without the need to spend astronomical advertising budgets.

Frequently asked question: If a company pays SAR 100 to acquire a new customer, but that customer buys a product that generates only SAR 20 in net profit for the company on the first purchase, does this mean the company is losing money and bleeding cash, and should it stop marketing?

Answer: Not necessarily! The secret lies in “repeat purchases,” or what is known as “customer lifetime value.” Delivery apps, telecommunications companies, and even banks are willing to record a loss on a new customer’s first transaction because they are betting that the customer will continue using the service for months or years. A customer who cost you SAR 100 and generated SAR 20 for you today may generate SAR 20 every month for two years. A smart investor does not look at acquisition cost alone; instead, they monitor the company’s ability to “retain” the customer. If the customer churn rate is high, a high acquisition cost amounts to wasting money and represents an investment disaster.