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How To Calculate Your Customer Acquisition Cost

Feb 17 • 2 min read

Knowledge Base > eCommerce > How To Calculate Your Customer Acquisition Cost

Customer Acquisition Cost (CAC) is a crucial metric for businesses that measures the cost of acquiring a new customer. Calculating CAC allows companies to evaluate the effectiveness of their marketing and sales efforts, as well as assess the long-term viability of their business model.

Here’s how to calculate CAC:

  1. Determine the time period you want to analyze. This could be a month, quarter, or year.
  2. Add up all the costs associated with acquiring customers during that time period. This includes marketing and advertising expenses, sales team salaries, commissions, and bonuses, as well as any other costs that are directly tied to acquiring new customers.
  3. Divide the total costs by the number of customers acquired during the same time period. This will give you your customer acquisition cost.

For example, let’s say that a company spent $10,000 on marketing and advertising efforts in a month and acquired 100 new customers during that same month.

CAC = $10,000 / 100 customers CAC = $100 per customer

This means that it costs the company $100 to acquire each new customer.

It’s important to note that CAC should be analyzed alongside other metrics like customer lifetime value (CLV) to determine the overall health of a business. A high CAC may be acceptable if the CLV is even higher, indicating that customers are providing enough long-term value to justify the acquisition cost.

For example, let’s say that another company spent $5,000 on marketing and advertising efforts in a month and acquired 50 new customers during that same month. However, these customers have a high CLV of $500 each.

CAC = $5,000 / 50 customers CAC = $100 per customer

In this scenario, the CAC is the same as the previous example, but the higher CLV means that the acquisition cost is justified in the long run.

In summary, calculating CAC is an important metric for businesses to evaluate the effectiveness of their customer acquisition efforts. It is important to consider CAC alongside other metrics, like CLV, to get a full picture of the health of a business.

Useful links:
  1. How To (Actually) Calculate CAC – Andrew Chen
  2. Accurately Calculate CAC (Use These 6 Data Points) 
  3. Formula to calculate & reduce CAC

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Common Questions

  • What is CAC, and why is it important for ecommerce business?

    CAC, or Customer Acquisition Cost, is a metric that measures the cost of acquiring a new customer for a business. In the context of an ecommerce business, CAC is particularly important because it can help companies understand the cost of acquiring a customer through online marketing and advertising efforts.

    Ecommerce businesses often rely on digital marketing and advertising to drive traffic to their websites, which can be costly. By calculating CAC, businesses can evaluate the effectiveness of their online marketing efforts and determine whether they are generating a positive return on investment.

    Knowing the CAC can also help ecommerce businesses make decisions about pricing, promotions, and other marketing strategies. If the CAC is too high, for example, the company may need to adjust its pricing or marketing tactics to attract more cost-effective customers.

  • What costs should I include when calculating CAC?

    When calculating CAC, you should include all costs associated with acquiring new customers, including marketing and advertising expenses, salaries and commissions for sales team, bonuses or incentives for customers, and any other expenses directly tied to customer acquisition.

  • What is a good CAC for my industry or business model?

    A good CAC for your industry or business model will depend on a variety of factors, including the size of your business, the competitive landscape, and the expected lifetime value of your customers. It’s important to compare your CAC to industry benchmarks and to monitor it over time to determine what is a good CAC for your specific business. In general, a lower CAC is typically better, but the specific target will depend on your business goals and financial model.

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