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E-commerce Customer Acquisition Cost (CAC)
growthThe total cost of acquiring a new customer, including all sales and marketing expenses divided by the number of new customers gained in that period.
Definition
Customer acquisition cost is one of the most important metrics for any business that depends on growth. It tells you how much you spend on average to convince one person to become a paying customer. This includes advertising, content marketing, sales team salaries, tools, and any other expenses directly tied to customer acquisition.
CAC must always be evaluated alongside customer lifetime value (LTV). A $500 CAC is terrible if the average customer only generates $200 in revenue, but excellent if the average customer generates $5,000. The magic ratio is LTV:CAC of 3:1 or higher, meaning each customer generates at least three times what it cost to acquire them.
CAC tends to increase over time as a company exhausts easy-to-reach audiences and must spend more to acquire each incremental customer. This is why efficient businesses obsess over reducing CAC through organic channels (SEO, referrals, content), improving conversion rates, and shortening sales cycles. A business that can acquire customers more cheaply than competitors has a durable competitive advantage.
Formula
CAC = Total Sales & Marketing Expenses / Number of New Customers Acquired Example
A SaaS company spends $60,000 on marketing and $40,000 on sales in a month, acquiring 200 new customers. CAC = $100,000 / 200 = $500 per customer.
Related Terms
Customer Lifetime Value (LTV)
growthThe total revenue a business can reasonably expect from a single customer account throughout the entire duration of their relationship.
CAC:LTV Ratio
growthThe ratio comparing customer acquisition cost to customer lifetime value. It measures whether a business spends a sustainable amount to acquire customers relative to the value those customers generate.
Churn Rate
growthThe percentage of customers who cancel or stop using a product or service during a given time period. It is the inverse of retention rate.
Conversion Rate
ecommerceThe percentage of visitors to a website or store who complete a desired action, most commonly making a purchase. It measures how effectively a business turns interest into revenue.
Put It Into Practice
Use these calculators to apply customer acquisition cost (cac) to your own numbers.
CAC vs LTV Calculator
Calculate your customer acquisition cost vs lifetime value ratio.
Open calculator →ROI Calculator
Calculate your return on investment, net profit, and payback period.
Open calculator →Retention Cost Calculator
Compare the cost of retaining customers vs acquiring new ones to optimize your budget.
Open calculator →