Definition
Customer acquisition cost (CAC) is the total spent on marketing and sales to win new customers in a period, divided by the number of new customers won in that period. It expresses in dollars what it costs the store to turn a stranger into a first-time buyer. Read next to the profit a first order and its repeat orders produce, CAC decides whether acquiring more customers is a good use of cash.
Formula
CAC = Acquisition spend ÷ New customers acquired
- Acquisition spend
- Ad spend, agency and creative costs, affiliate and influencer fees, and any discount used to win the first order, for the period
- New customers acquired
- Count of customers whose first ever order with the store fell in the same period, from the store's customer records
A quarter of acquisition spend
- Paid media spend on prospecting
- $90,000
- Creative, agency and tool costs tied to acquisition
- $15,000
- First-order discounts redeemed by new buyers
- $9,000
- Total acquisition cost
- $114,000
- New customers whose first order fell in the quarter
- 1,900
- CAC
- 114,000 ÷ 1,900 = $60
- Average gross profit on a first order
- $38
Illustrative figures. This store spends 60 dollars to win a customer whose first order returns 38 dollars of gross profit. The gap is closed only if enough of those customers order again, which is why CAC is always read with repeat purchase rate and payback period.
Why it matters
CAC matters because it converts marketing activity into a unit cost the rest of the business can reason about. A finance lead cannot act on a ROAS, but a CAC sits directly against the gross profit per customer and says whether growth is affordable. It also reveals trends that channel metrics hide: as a store scales spend, CAC tends to rise because the cheapest audiences are reached first, and watching the curve tells the owner where the next dollar stops making sense. Tracked by channel and by cohort, it shows which sources bring customers who stay and which bring one-off bargain hunters, which is the difference between a store that compounds and one that runs in place.
Where it goes wrong
- Counting every order as a new customer: repeat buyers inflate the denominator and make CAC look far lower than it is, so the count must come from first-order dates in the store's records
- Excluding the discount: a welcome offer of 15 dollars on a first order is an acquisition cost as real as a click, and leaving it out understates CAC by that amount on every new customer
- Reporting a single blended number only: it is useful for the budget, but a prospecting channel with a high CAC and a high repeat rate can be better value than a cheap channel whose customers never return
- Comparing CAC across periods with different mixes: a quarter heavy with brand search and email will show a low CAC that vanishes when the store has to prospect again
Questions about CAC
Should CAC include the salaries of the marketing team?
For a fully loaded CAC, yes, along with software and agency retainers. For a paid-media CAC used to steer campaigns week to week, media spend and first-order discounts are enough. Label which version is being reported so the two are not compared with each other.
Is a lower CAC always better?
Not on its own. A store can drive CAC down by only marketing to people who were about to buy anyway, which shrinks the customer base over time. The right question is whether the profit each new customer produces over their lifetime comfortably exceeds the CAC and how quickly it does so.
How does CAC relate to ROAS?
ROAS is revenue per ad dollar with no distinction between new and returning buyers. CAC isolates new customers and prices each one. A campaign can show a strong ROAS from repeat buyers while its CAC on genuinely new customers is unaffordable, which is why both are tracked.