What is Customer Acquisition Cost (CAC)?
Customer Acquisition Cost (CAC) measures the total cost of acquiring a new customer. It encompasses all marketing and sales expenses divided by the number of new customers gained in a specific period. This metric tells you exactly what you're paying to win each new customer.
The basic formula for calculating CAC is straightforward:
For example, if you spend $10,000 on marketing and $5,000 on sales in a month, and acquire 150 new customers, your CAC is ($10,000 + $5,000) / 150 = $100 per customer.
For eCommerce businesses, sales costs are often minimal since most operations are automated. In these cases, CAC primarily reflects marketing and advertising spend.
Why Customer Acquisition Cost is Critical for Growth
CAC is one of the most important metrics for any business because it directly impacts profitability. If you spend more acquiring customers than they generate in value, your business cannot survive long-term.
Understanding your CAC helps you:
- Set marketing budgets: Know how much you can afford to spend on each channel
- Evaluate channel efficiency: Compare CAC across Facebook, Google, influencers, and other channels
- Forecast profitability: Project whether customer economics support your growth plans
- Make scaling decisions: Determine when and how aggressively to invest in growth
When paired with Customer Lifetime Value (LTV), CAC becomes even more powerful. The LTV:CAC ratio reveals whether your customer economics are sustainable and where you have room to invest more aggressively.
How to Calculate Customer Acquisition Cost
Calculating accurate CAC requires capturing all costs associated with acquiring new customers. The most common mistake is underestimating costs by only counting ad spend.
What to Include in CAC
For a comprehensive CAC calculation, include:
- Advertising spend: Facebook, Google, TikTok, and other paid media
- Marketing tools: Email platforms, analytics, design software
- Agency and freelancer fees: Any outsourced marketing work
- Content creation: Photography, video, copywriting
- Marketing team salaries: Proportional to time spent on acquisition
- Sales costs: If applicable, salaries and commissions
Blended vs. Channel-Specific CAC
Blended CAC gives you an overall view of acquisition costs across all channels. Channel-specific CAC reveals which channels are most efficient, helping you allocate budget optimally.
Most businesses should track both. Blended CAC shows your overall health, while channel CAC guides tactical decisions about where to spend.
Customer Acquisition Cost Benchmarks by Industry
CAC varies significantly by industry, product category, and business model. According to First Page Sage data, average CACs range from $21 to over $500 depending on the sector.[1]
Arts & Entertainment
$21
Average CAC
eCommerce (General)
$70
Average CAC
Consumer Goods
$87
Average CAC
Electronics
$377
Average CAC
These benchmarks provide context, but your ideal CAC depends on your specific LTV. A $200 CAC is perfectly healthy if your LTV is $800, but problematic if LTV is only $250.
The consistent benchmark across industries is the 3:1 LTV:CAC ratio. If customers generate at least three times what you spent to acquire them, your unit economics are considered healthy.[2]
Understanding CAC by Marketing Channel
Different marketing channels have different acquisition costs and customer quality profiles. Understanding these differences helps you allocate budget effectively.
Paid Social (Facebook, Instagram, TikTok)
Paid social typically has moderate CACs but offers precise targeting. CACs have increased significantly since iOS 14.5 tracking changes. Expect CACs of $30-$100+ for most eCommerce products, with wide variation based on product price point and targeting efficiency.
Paid Search (Google, Bing)
Search ads capture high-intent users actively looking for products. CACs tend to be higher but conversion rates are often better. Brand search typically has lower CAC than generic terms.
Organic Channels (SEO, Content, Social)
Organic acquisition has the lowest marginal CAC but requires upfront investment in content and SEO. Once established, organic channels can deliver customers at a fraction of paid channel costs.
Referral and Word of Mouth
Referred customers often have the lowest CAC and highest LTV. Investing in customer experience and referral programs can significantly reduce blended CAC over time.
Proven Strategies to Reduce Customer Acquisition Cost
Reducing CAC while maintaining customer quality is one of the most impactful things you can do for profitability. Here are strategies that consistently deliver results.
Improve Conversion Rate
If more visitors convert, you need less traffic to acquire the same number of customers. A 50% improvement in conversion rate effectively cuts your CAC in half. Invest in website optimization, checkout improvements, and conversion rate testing.
Optimize Ad Targeting
Refine your audience targeting to reach people more likely to convert. Use lookalike audiences based on high-value customers, not just any purchasers. Exclude poor-performing segments proactively.
Invest in Organic Channels
SEO, content marketing, and organic social require upfront investment but deliver compounding returns. Every organic customer reduces your blended CAC.
Build Referral Programs
Turn satisfied customers into acquisition channels. Referred customers typically have lower CAC and higher LTV. Design referral incentives that reward both parties.
Improve Email Marketing
Email converts leads acquired from other channels at minimal incremental cost. Strong email flows reduce the pressure on paid advertising to close every sale.
Frequently Asked Questions
There is no universal 'good' CAC because it depends entirely on your customer lifetime value. The key metric is your LTV:CAC ratio, which should be at least 3:1. If your LTV is $300, a CAC of $100 is healthy. If your LTV is $150, that same $100 CAC is problematic. Industry benchmarks range from $21 for arts and entertainment to $377 for electronics, but your specific product and margins matter more than industry averages.
For the most accurate CAC, include proportional salaries for team members whose primary role is customer acquisition. This includes marketing managers, paid media specialists, and content creators. For eCommerce, exclude customer service and fulfillment staff since they support existing customers. If someone splits time, estimate the percentage dedicated to acquisition activities.
Calculate CAC monthly for trending and quarterly for strategic decisions. Monthly tracking helps identify issues quickly, while quarterly views smooth out volatility from promotions or seasonal changes. Compare CAC trends over time rather than focusing on any single period, since customer acquisition costs naturally fluctuate.
Rising CAC often stems from increased advertising costs as platforms mature, audience saturation requiring broader targeting, iOS tracking changes affecting optimization, seasonal competition, or creative fatigue. Investigate by looking at CAC by channel to identify which sources are getting more expensive. Also check if conversion rates are declining, which would increase effective CAC.
CAC payback period measures how long it takes to recover your acquisition cost from a customer's purchases. Calculate it by dividing CAC by the average monthly profit per customer. For example, if CAC is $100 and monthly profit is $25, payback is 4 months. Shorter payback periods improve cash flow and reduce risk. Many investors look for payback under 12 months for eCommerce businesses.
References
- First Page Sage - Customer acquisition cost benchmarks by industry, ranging from $21 for Arts & Entertainment to $377 for Electronics.
- First Page Sage - The most common benchmark for LTV-to-CAC ratio is 3:1.
- Shopify - How to calculate and optimize customer acquisition cost for eCommerce businesses.
- ProfitWell - Understanding CAC, CAC payback period, and customer unit economics.
