Why more sales don’t always mean more profit: Understanding customer acquisition cost (CAC)

May 14

Man on his phone reviewing customer acquisition cost (CAC)

Every business owner celebrates when sales are up—and rightfully so. But here’s the uncomfortable truth: growing revenue doesn’t always mean growing profit.

Let’s break down why.

The hidden cost behind every sale

There’s a financial metric that can quietly eat away at your profits if you’re not watching it closely: customer acquisition cost (CAC).
If you're not tracking it, you could be spending more to land a customer than you're actually earning from them.

More sales don’t always mean more profit.

Case study: When sales growth became a liability

Rachel, the CFO of EnduroFit, a direct-to-consumer shoe brand for marathoners, thought the company was thriving. Orders were flying in, and revenue looked strong.

But something wasn’t adding up.

When Rachel reviewed the numbers, she discovered it cost $120 to acquire each new customer—but each customer only brought in $100 in profit. Every new sale was creating a $20 loss.

To fix it, she:

Cut underperforming ads
Focused on high-converting campaigns
Rolled out a referral program to lower acquisition costs

Within a few months, EnduroFit turned a $20 loss per customer into a $20 gain. That shift made their business model both profitable and scalable.

How to calculate your CAC

Here’s how to figure out your customer acquisition cost:

Add up your total marketing and sales expenses for a specific period
Divide that number by the total number of new customers acquired during the same period

CAC formula:
Customer acquisition cost =
Total marketing & sales costs ÷ Number of new customers

Example:
If you spent $10,000 on marketing last quarter and gained 100 new customers, your CAC is $100.

Now ask yourself: Is each customer bringing in more than $100 in profit?

If not, it’s time to take a closer look at your growth strategy.

Quick CAC impact summary

High CAC can mean:
– Overspending on marketing
– Unsustainable sales growth
– Profit margins shrinking with every sale
Low CAC allows you to:
– Scale profitably
– Improve ROI on marketing spend
– Build more predictable revenue

What this means for your business

Sales growth is only healthy when it leads to profitable growth. Keep an eye on your CAC and make sure your marketing efforts are aligned with your long-term financial health.

If you haven’t checked your CAC lately, take ten minutes today to run the numbers. A small step like this can lead to better decisions, stronger margins, and a more sustainable path forward.