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CAC - Customer Acquisition Cost

CAC (Customer Acquisition Cost) is the average cost of acquiring one new customer. It is one of the most important metrics to assess whether your marketing is profitable and sustainable.

What is CAC?

Customer Acquisition Cost is calculated by dividing your total marketing and sales costs by the number of new customers in a given period:

CAC = Total marketing costs / Number of new customers

If you spend $50,000 on marketing in a month and get 100 new customers, your CAC is $500.

What should be included in CAC?

To calculate CAC correctly, you need to include all costs related to customer acquisition:

  • Advertising costs: Google Ads, Facebook/Instagram, TikTok, etc.
  • Content production: Blog posts, videos, graphics for ads.
  • Software: SEO tools, email platform, analytics tools.
  • Agency costs, if any: If you use an agency for advertising.
  • Discounts and offers: First purchase discounts used to attract new customers.

CAC and CLV - the most important ratio

CAC alone is meaningless without context. What matters is the ratio between CAC and CLV (Customer Lifetime Value):

  • CLV:CAC ratio: A healthy ratio is typically 3:1 - the customer brings 3x their acquisition cost over time.
  • 1:1 or lower: You spend as much (or more) to acquire the customer as they are worth. Unsustainable.
  • 5:1 or higher: Either you're highly efficient or under-investing in growth.

CAC per channel

It's valuable to calculate CAC separately for each marketing channel:

  • Google Ads: Typically medium to high CAC, but with clear purchase intent.
  • Facebook/Instagram: Can have lower CAC with good creative and targeting.
  • SEO/Organic: Low marginal CAC over time, but requires initial investment.
  • Email: Very low CAC for existing subscribers, but requires them to sign up first.

By knowing CAC per channel, you can allocate budget to the most effective channels.

How to reduce CAC

  • Improve conversion rate: Same ad spend, more customers = lower CAC.
  • Optimize ads: Better creative, better targeting and negative keywords reduce waste.
  • Increase organic traffic: SEO and content marketing drive traffic at no click cost.
  • Referral programs: Existing customers acquire new customers at low cost.
  • Retargeting: Convert visitors who already know you, cheaper than brand new users.

CAC payback period

The payback period is the time it takes to earn CAC from a new customer. If your CAC is $500 and an average customer buys $250 with a 50% margin ($125 profit per order), it takes 4 orders to earn CAC. The shorter the payback, the faster you can reinvest in growth.

We know online marketing in Shoporama

We've been working with online marketing ourselves for decades. As the only shop system in the country, we have spoken multiple times at conferences such as Marketingcamp, SEOday, Shopcamp, Digital Marketing, E-commerce Manager, Ecommerce Day, Web Analytics Wednesday and many more.

See the full dictionary