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What is Customer Acquisition Cost (CAC)?
Customer acquisition cost (CAC) measures the total cost of acquiring a new customer, including marketing, sales, and related expenses. It’s a broader metric than CPA, accounting for all acquisition-related spending.
Why Customer Acquisition Cost matters?
CAC provides a complete picture of what it takes to add a customer to your base. In ecommerce, keeping CAC below your customer lifetime value is critical to sustainable growth. If CAC climbs above LTV, each new customer is unprofitable, and scaling becomes dangerous. CAC also helps you measure the long-term efficiency of your marketing strategy, not just campaign-specific performance.
How Customer Acquisition Cost works?
CAC = (Total Marketing + Sales Costs ÷ Number of New Customers Acquired). This can include ad spend, agency fees, marketing salaries, software, and more. For ecommerce, many brands calculate both a blended CAC (all spend, all channels) and channel-specific CACs to see where efficiency is strongest.
Example in ecommerce
A home décor store spends $50,000 in marketing and sales costs in Q1, acquiring 2,000 new customers. CAC = $25. They find paid social CAC is $18, while paid search CAC is $32. By reallocating budget to social and optimizing search campaigns, they bring blended CAC down to $22.
Common mix-ups
CAC is not CPA. CPA usually refers to media spend per sale, while CAC includes all acquisition costs.
Best practices
- Track CAC by channel and over time.
- Compare CAC to LTV to ensure profitability.
- Reduce CAC by improving conversion rates.
- Leverage organic channels to lower blended CAC.
- Invest in retention to increase LTV and support higher CAC.
- Monitor CAC payback period.
- Avoid over-reliance on one acquisition channel.
Industry benchmarks
- CAC varies heavily; many ecommerce brands target CAC at 20-30% of LTV.
Related terms
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