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Understanding the Customer Acquisition Cost (CAC)

What is Customer Acquisition Cost CAC?The Customer Acquisition Cost (CAC) measures how much a company spends to obtain new, additional customers. Oftentimes, this calculation is used with the customer lifetime value (LTV) metric, that also projects the customer’s profitability to calculate the newly acquired customer’s value.

It’s primarily used to measure a business’ sales and marketing departments to figure out their profitability, profit margin and return on investment figures.

How to Calculate

CAC = Sales and Marketing Expense / Number of New Customers

Examples of the expenses include product and service promotion expenditures, special compensation and commissions, regular wage payments, and operating expenses.

The tally of newly acquired customers is simply how many new, unique contracts the business acquired. It’s important to keep the expenses and customer acquisition numbers consistent over the same periods.

Why It’s Important

Business owners and their managers, along with investors, can look at sales and marketing efforts from the return on investment of their expenditures and outcomes. For example, there could be multiple channels that sales and marketing took to obtain new customers over a quarter, half-year or 12-month period (such as email marketing, social media marketing, conferences, etc.). Based upon each channel, the customer acquisition cost is determined by dividing the financial outlay per customer acquired.

From there, each channel can be analyzed to see which one works well and, equally important, which ones don’t work well and should either be discontinued or modified. Internal stakeholders and external investors (both existing and potential) can look at trends to see how ongoing efforts may be working and if existing management is productive or needs to be replaced with more competent individuals.

Accounting Considerations

Based on FASB’s Accounting Standards Codification 340-40, businesses are required to document and capitalize incremental costs of securing new customer business if the related expenses are projected to be recouped.

An incremental cost in the scope of obtaining a contract is a cost an entity incurs to obtain a contract that wouldn’t have been incurred if the contract hadn’t been obtained.

While a sales commission (be it fixed or a percentage of a new contract) may be considered an eligible incremental cost to one of its employees, it’s not necessarily always the case. Rather, the true test of whether an incremental cost is capitalizable depends on the subjective interpretation of if a mandated financial expenditure for an incremental cost is attributed to signing a contract with a new customer.

The following sample situations often require more investigation to determine whether the capitalization of costs is applicable:

  • Equity issuances based upon meeting production and essential function goals
  • Employee compensation according to previous years’ executed contracts
  • Sales commissions allocated over multiple timeframes and/or to more than one employee for a single contract

ASC 340-40 also stipulates the amortization schedule of capitalization costs of obtaining a customer contract on a scheduled timeline that follows the delivery to the customer of the contracted goods or services.

Conclusion

While the customer acquisition cost may be straightforward, when it comes to subjective cases, businesses that have experience with murkier situations are able to make the most of their subjective sales and marketing expenses when navigating the tax and accounting landscape. 

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Facilitating Access to Housing and In-State Tuition, Sanctioning Iran and the Battle Over DHS Funding

21st Century ROAD to Housing Act (HR 6644) – As many local governments face the problem of rising affordability and severe housing shortages, this bipartisan bill would update existing housing programs to increase the housing supply, as well as streamline federal regulations that slow construction. Among its provisions, the legislation would authorize a pilot program designed to convert vacant or underused buildings into residential housing, issue grants for infrastructure improvements for utilities and transportation, and include construction of new housing units for low- and moderate-income residents. The legislation was introduced on Dec. 11, 2025, by Rep. French Hill (R-AR). It originally passed in the House on Feb. 9, but the Senate made changes before passing it on March 12. It has returned to the House for a final vote.

Territorial Student Access to Higher Education Act (HR 6472) – This act would amend the Higher Education Act of 1965 to provide for in-state tuition rates for certain residents of Guam, the Commonwealth of the Northern Mariana Islands, American Samoa, and the United States Virgin Islands. The bill would help offset the high cost of attending college on the U.S. mainland, which prohibitively adds thousands of dollars to airfare, housing, and basic living expenses incurred by citizens of U.S. territories. The legislation was introduced by Rep. James Moylan (R-Guam) on Dec. 4, 2025. It passed the House on March 7 and is currently under consideration in the Senate.

Enhanced Iran Sanctions Act of 2025 (HR 1422) – On Feb. 8, 2025, Rep. Michael Lawler (R-NY) introduced this bill to strengthen secondary sanctions on foreign entities (e.g., banks, insurers, pipeline construction and operation facilities) that help process, export, or sell illicit Iranian oil, including for liquified natural gas. The bill lay dormant in the House until late February, when the U.S. launched its attack on Iran. On March 10, the bill was updated to include an interagency work group to develop more sanctions related to Iran and a multinational effort to enforce sanctions. The latest version of the act was passed in the House on March 16; its fate currently lies in the Senate.

Servicemembers’ Credit Monitoring Enhancement Act (S 2074) – The purpose of this bill is to provide free credit monitoring for veterans. Presently, only active duty members can take advantage of this service. The bill was introduced by Sen. Amy Klobuchar (D-MN) on June 12, 2025. It passed unanimously in the Senate on March 5 and is currently under consideration in the House.

Department of Homeland Security Appropriations Act, 2026 (HR 7744) – This is the bill that is currently holding up appropriations for the Department of Homeland Security (DHS) for the fiscal year ending Sept. 30. The bill was introduced by Rep. Tom Cole (R-OK) on March 2 and passed in the House on March 5. However, it has triggered a partial government shutdown and is under heated debate in the Senate. Republicans insist on passing the complete bill with increased funding for national security and border protection. The legislation also includes provisions prohibiting funds for Diversity, Equity and Inclusion and Critical Race Theory programs, as well as abortions and gender-affirming care for ICE detainees. Senate Democrats are seeking to include guardrails that would prohibit ICE agents from wearing masks or entering homes, schools, hospitals, etc., without a judicial warrant.

PAY TSA Act of 2026 – Rep. Nick Langworthy (R-NY) introduced a carve-out bill for DHS on March 16, authorizing specific fees already collected to fund the Transportation Security Administration (TSA) during shutdowns. The bill would direct the Aviation Passenger Security Fee (initiated after the 9/11 terror attacks) to be used to pay TSA agents during any period that TSA appropriations lapse. Airlines currently charge this passenger fee ($5.60 for a one-way trip and up to $11.20 for a round-trip) for flights that originate in the United States. The bill is not expected to pass due to Republican opposition to carving out funding from the general DHS appropriations bill.

End Special Treatment for Congress at Airports Act of 2026 (S 4123) – Sen. John Cornyn (R-TX) introduced this bill on March 17 as a companion bill reflecting stalled appropriations for DHS – and for TSA workers specifically. The bill calls for a ban on Congressional lawmakers’ current preferential status that enables them to sidestep security checkpoint lines at U.S. airports. The ban would require members of Congress to wait in TSA lines along with other passengers. The bill passed in the Senate on March 19, and its fate now lies with the House.

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The Governance Wall and AI Regulation

AI RegulationThe era of artificial intelligence as a competitive advantage has hit a structural barrier – the Governance Wall. Some time back in 2024 and 2025, organizations raced to adopt AI tools to automate decisions, improve efficiency and cut costs. Now, as we move through 2026, the conversation is shifting from “How powerful is your AI?” to “Can you explain its decisions to a regulator, customer or even a judge?”

As global regulations move from abstract guidelines to strict enforcement, businesses must move from pure automation to strategies defined by traceable, human-centred oversight.

The Shift From Innovation to Accountability

In the early days of AI adoption, the priority was speed and results. Algorithms made decisions behind the scenes with little transparency. As AI improved, it was used in high-stakes scenarios like screening job applications, approving loans, detecting fraud and influencing health decisions. When these systems make mistakes, there are consequences that could include lost opportunities, discrimination claims or legal exposure.

As a result, regulators and even consumers are demanding answers. This shift has seen businesses move from AI innovation to AI accountability, where every automated decision must be justified, traceable, and explainable.

The Governance Wall and Regulatory Landscape

The governance wall refers to the growing layers of regulation, policies, and legal expectations that AI systems must pass before deployment.

AI laws such as the EU AI Act, which will take full effect in August, have set a global gold standard for transparency. One of the articles in this law is the Right to Explanation, which requires any company using AI for high-risk decisions to explain the logic behind the output.

Across the United States, some states have already introduced stricter AI-related rules. Notable examples include California’s AB 2013 and Colorado’s SB 24-205 state laws requiring businesses to disclose when AI is used in consequential life decisions, such as hiring, insurance premiums, or credit lending.

The Real Business Impact

For many businesses, this shift is more than a compliance issue as it introduces a complete operational change.

  1. Explainability is no longer optional
    AI systems must be designed in a way that allows you to explain outcomes clearly. For instance, if a system rejects a loan application or filters out a job candidate, you must be able to justify why. Hence, a system must have transparent algorithms, clear logic pathways, and documented decision criteria.
  2. Audit trails are becoming mandatory
    Businesses are now expected to maintain audit trails. These are detailed records showing what the AI did, when it did it, and why it made a specific decision. If regulators or legal teams ask questions, you must provide evidence and not assumptions.
  3. Pre-use notices and opt-out options
    Before an AI agent processes a customer’s data, a business may be required to notify the customer that AI is being used, explain how it impacts them, and offer a way to opt out.
  4. Board-level oversight
    AI is no longer just an IT concern. Executives and directors are increasingly responsible for managing AI-related risks, ensuring compliance with regulations, and protecting the company from legal exposure. In other words, the AI strategy must align with the legal and risk management strategy.

The SEC and the AI Washing Crackdown

While local regulators focus on consumers, the U.S. Securities and Exchange Commission (SEC) is focusing on investors. As AI becomes a buzzword, many companies are tempted to exaggerate their capabilities. This practice, known as AI washing, involves claiming to use advanced AI when the technology used is minimal or non-existent. Companies do this to attract investors, boost valuation, and appear innovative in a competitive market.

The SEC has made it clear that any AI claims that are misleading will be treated as securities fraud. This is not just a problem for tech giants, as even small and medium businesses seeking funding are having their tech stacks audited. Firms found in violation face serious consequences – as happened to Delphia and Global Predictions, which had to pay $400,000 in penalties.

Strategic Solutions

For a business to scale without being paralyzed by regulations, it must:

  1. Implement Human-in-the-Loop (HITL) systems by positioning human staff as quality assurance to sign off on high-stakes outputs. This will provide the human judgment layer that regulators demand.
  2. Adopt small language models as they are smaller, domain-specific, and easier to interpret and audit. They also offer explainable AI (XAI) capabilities, making it easy to show your work.
  3. Unified governance to facilitate compliance. This will require leadership, including legal (interpret laws), IT (build audit trails), and HR or operations (manage the human oversight) to work together.