Customer acquisition cost (CAC) calculator
Calculate cost of acquiring a new customer to understand how effective are your marketing/sales efforts. Keep in mind that you should aim for a CAC which 1/3 of your Customer's LTV.
Quick intro to CAC
CAC (Customer Acquisition Cost) is the average amount a business spends to gain a new customer. It is calculated by dividing total marketing and sales expenses by the number of new customers acquired during a specific period. Lower CAC means you’re acquiring customers more efficiently.
Understanding and optimizing CAC helps ensure that marketing and advertising spend is profitable, not exceeding the revenue earned from each buyer. By lowering CAC, store owners can increase profit margins, scale their business more efficiently, and compete more effectively in the market.
Ideal CAC
Ideal CAC should be much lower than the Customer Lifetime Value (LTV). Your LTV:CAC ratio should be at least 3:1 (i.e., for every $1 you spend to acquire a customer, you earn $3 or more over their lifetime).
Best way to optimize it
To optimize CAC, improve your ad targeting, boost website conversion rates, and use lower-cost channels like referrals and SEO. Continuously measure results and reallocate budget to what works best
How to calculate customer acquisition cost (CAC)?
To calculate CAC (Customer Acquisition Cost), divide your total marketing and sales expenses by the number of new customers acquired during the same period.
Formula: CAC = Total Marketing & Sales Spend ÷ Number of New Customers
Customer acquisition cost FAQs
A good CAC varies by industry, product price, and customer lifetime value, but generally, your CAC should be low enough that you still have a healthy profit margin after accounting for your costs.
The general rule of thumb is that CAC should be 1/3 (or lower) of your customer's LTV. For most e-commerce stores this means a CAC in the range of $10 - $50.
It’s best to monitor CAC regularly – at least monthly, so you can spot trends early and adjust your marketing strategy as needed.
CAC includes only the costs directly related to acquiring new customers, such as advertising, marketing campaigns, and sales expenses – not shipping or product costs.
The sales expenses (cost of sales) in e-commerce typically include costs like commissions to sales representatives or affiliates, salaries and bonuses for sales staff, payments to influencers, and fees for payment gateways or CRM software.
You can lower your CAC by:
- Improving your ad targeting
- Optimizing website conversion rates and AOV
- Using referral programs
- Leveraging SEO and content marketing
- Focusing on retention
Comparing CAC to LTV ensures you’re spending less to acquire a customer than you’ll earn from them over time, helping you run a more sustainable and profitable business.