What is CAC?
CAC, or customer acquisition cost, is what you pay in marketing to win one new customer, found by dividing acquisition spend by the number of first time buyers it produced.
Formula
CAC = acquisition spend ÷ new customers acquired
Worked example, not a result
A first order that does not cover its own CAC
Say a store spends 12,000 in a month on campaigns aimed at people who have never bought, and those campaigns produce 300 first time customers. CAC is 12,000 divided by 300, which is 40 per new customer.
Now look at what the first order brings in. If a first order averages 68 and the contribution margin is 44 percent, the store keeps 29.92 from that order. That is less than the 40 it cost to win the customer, so the first sale is about ten short of paying for itself.
That is not automatically a problem. It becomes one only if the customer never comes back. If the same buyer orders twice more over the following year, the relationship pays for the 40 several times over. If the store has no post purchase email, no reorder reminder and no reason to return, the 40 is simply lost.
All figures here are invented to show the shape of the calculation.
Why it matters
CAC sets the ceiling on how fast a store can grow with paid traffic. It is the visitors lever expressed in money, and it decides whether more spend is an investment or a leak.
It only makes sense next to the other three levers. A higher average order value means the first purchase covers more of the cost. A better conversion rate lowers CAC without touching the ad account, because the same spend produces more buyers. Repeat purchases decide whether a CAC above the first order margin is patient investment or a slow loss.
For a store owner, CAC turns a vague worry into a decision. Work out what you keep from a customer over a realistic period, compare it to what you pay to get one, and you know whether to spend more, fix the funnel first, or put the next month of effort into bringing existing customers back.
Common mistakes
- Dividing total ad spend by total orders. That mixes repeat buyers into the count and reports a cost far below what a genuinely new customer costs.
- Judging CAC against first order revenue instead of first order contribution. Revenue does not pay the bills, and the gap between the two is usually where the misjudgement lives.
- Ignoring costs that are not media. Creative production, agency fees and discount codes given to win the first order all belong in acquisition cost.
- Treating one CAC figure as the whole store. Acquisition cost varies a lot by product and by channel, and an average hides both the campaigns worth expanding and the ones worth stopping.
Related terms and answers
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