Customer acquisition cost (CAC) refers to the total expense a business incurs to acquire a new customer. This includes costs related to marketing, sales, and any other resources used to attract potential customers. By calculating CAC, companies can assess the effectiveness of their marketing strategies and determine how much they can afford to spend to gain new clients. Understanding CAC is crucial for businesses as it helps them evaluate profitability and growth potential. A lower CAC indicates a more efficient acquisition process, while a higher CAC may signal the need for improved marketing tactics or sales approaches to enhance customer engagement and retention.