The cost to acquire a customer. For a customer to be profitable for a firm, their customer acquisition cost must be less than their lifetime customer value. To illustrate: if it costs you $100 to get a new customer, but their total contribution to your profit (before marketing expenses) over the life of their relationship with you is only $90, then you have lost money on that customer.
Customer acquisition costs come from marketing. The cost per customer depends on the conversion rate from advertising campaigns. "Conversion rate" is the rate at which you convert people who see your ad into paying customers.
The "marketing funnel" illustrates the relationship between conversion rate and customer acquisition cost:
Cost-Per-Click (CPC) Advertising (also know as Pay-Per-Click [PPC] Advertising)
Cost per click is the price you pay to a web site that hosts your ad when someone clicks on that ad. For example, if you advertise on Google on a pay-per-click basis, and the cost per click is $2, you pay Google $2 every time someone clicks on your ad.
Customer acquisition cost = CPC x 1/Conversion Rate
For example, if you advertise on Google on a pay-per-click basis for $2 per click, and 5% of people who click on your ad become a customer, your customer acquisition cost is $40: customer acquisition cost = $2/click x 1/0.05 = $2 x 20 = $40.
Cost Per Mille (CPM Advertising)
Cost per Mille means "cost per thousand page impressions." A page impression is one view of a web page. Cost per Mille is the price you pay to a web site that hosts your ad. You pay the CPM amount for every thousand views of the page that hosts your ad. For example, if you advertise on The New York Times web site on a CPM basis, and the CPM is $5, you pay The New York Times $5 for every thousand views of the page on which your ad appears - whether or not the people viewing the page click on the ad.
Customer acquisition cost = CPM/1000 x 1/Conversion Rate on Click-Through x 1/Click-Through Rate
For example, say you advertise on The New York Times web site. The newspaper charges you $5 CPM. 0.1% of people who see the web page click on your ad, and 2% of those that click on your ad buy your product. You can figure out what it takes to make a sale:
1 sale requires 50 people to click on the ad (2% conversion rate on clicks-through). To get 50 clicks you need 50,000 page views (0.1% click-through rate). So a sale requires 50,000 page views, and you are paying the newspaper $5 per 1,000 page views. So your customer acquisition cost is $5 x 50 = $250.
From the formula: Customer acquisition cost = $5/1000 x 1/0.02 x 1/0.001 = $5/1000 x 50 x 1,000 = $250