CAC
CAC, Customer Acquisition Cost, is the cost of gaining one new customer: total marketing and sales costs for a period divided by the number of new customers in the same period. The key word is new: CAC measures acquisition, not all orders. On its own it is just a number. It gains meaning only when paired with customer value, LTV.
In short
| Formula | CAC = marketing and sales costs / number of new customers |
| How it differs from CPA | CPA prices a conversion, repeat ones included. CAC counts only new customers |
| What belongs in it | Media spend, agencies, tools, the sales team. By whichever definition you pick, applied consistently |
| What it is read with | LTV and the payback period. CAC without them says nothing |
How it is calculated
Formula and inputs
CAC = acquisition costs for a period / number of new customers in the same period, usually a calendar month. The numerator holds everything that gaining a new customer cost: media spend across all paid channels, agency fees or the salaries of the in-house team, measurement and campaign management tools, creative production, and welcome discounts or vouchers redeemed on the first order. Companies with a sales team add its salaries and commissions. Costs of pure retention activities, such as CRM and email to existing customers, are kept out of the numerator if the company can separate them. The denominator counts only customers who placed their first-ever order with the company during the period. This is verified in the order system by email, phone or customer ID, not by the "new customer" flag in an ad platform, which knows only its own data. Repeat purchases do not belong in the denominator; those are measured by CPA or retention cost.
Example calculation
Worked example: an e-commerce store, one calendar month, €10 welcome discount on the first order.
| Media spend across all paid channels | €45,000 |
| Agency, tools and creative production | €15,000 |
| Welcome discounts: 1,500 new customers × €10 | €15,000 |
| New customers by first order | 1,500, of which 1,000 from paid channels |
| Blended CAC = 75,000 / 1,500 | €50 |
| Paid CAC = (45,000 + 15,000 + 10,000) / 1,000 | €70 |
Counting media spend alone against all new customers would give a CAC of €30. The same month thus produces three numbers, €30, €50 and €70, depending on what enters the calculation. The highest is more than double the lowest.
Blended or paid CAC
Blended CAC divides all acquisition costs by all new customers, including those from organic search, referrals and direct visits. It shows the economics of the company as a whole and is read against LTV: at an LTV of €150 of margin per customer, the LTV/CAC ratio is 3.0. Paid CAC divides the costs of paid channels only by the customers attributed to those channels and says what a customer acquired through advertising costs. Channel budgets are steered by it. In the same example the LTV/CAC ratio comes out at 2.1. Both numbers are tracked side by side. When blended CAC falls while paid CAC rises, the company is acquiring customers more cheaply, but the advertising itself is getting more expensive: the share of organic is growing, not the effectiveness of the campaigns. The definition does not change over time; CAC has value only as a series of comparable months.
Why CAC says nothing without LTV
A worked example: shop A has a CAC of 50, shop B of 150. It looks obvious until customer value enters the picture: shop A's customer buys once with a margin of 60, shop B's customer keeps returning and leaves 600 in margin over two years. Shop A earns 10 per customer, shop B 450. The more expensive acquisition is forty-five times more profitable. Deciding on CAC alone means systematically choosing wrong.
From our own practice
For clients with repeat purchases we always separate campaigns and metrics for acquisition and retention: otherwise retargeting and CRM make CAC look lower while bringing no new customers. The most valuable step tends to be breaking CAC down by channel and segment: it routinely turns out the average CAC looks healthy while half the budget buys customers who never return, and the segment with the highest LTV is underinvested.
Common mistakes
- Mixing new and returning customers. That turns CAC into CPA and strips it of meaning.
- Counting media spend only. Without agencies, tools and sales, CAC is understated and decisions built on it are wrong.
- One average for the whole company. CAC differs by channel and segment. The average hides both extremes.
Related terms
See also LTV, LTV/CAC ratio, payback period, CPA and contribution margin.
Frequently asked questions
What is a good CAC?
One that pays back in reasonable time. The rule of thumb is LTV at least three times CAC and payback within a year, but it depends on cash flow and growth stage.
Do discounts belong in CAC?
Welcome discounts and new-customer vouchers do, they are direct acquisition costs. They are often larger than media spend and nobody counts them.
How often should CAC be tracked?
Monthly by channel and quarterly by segment. A daily CAC is noise.
How we can help
We build acquisition economics and per-channel CAC breakdowns as part of our Performance marketing agency service.