What Is Customer Acquisition Cost?
Posted: Mon Feb 17, 2025 10:19 am
As the name suggests, customer acquisition cost describes the total direct and indirect cost of converting a member of your target audience into a paying customer.
For online merchants, these costs can vary widely. CAC includes not only the price of related marketing campaigns but also storing and shipping the actual product, as well as the cost of any marketing or sales professionals who have worked to procure the customer.
In other words, this is a business-level metric. A lower customer acquisition cost naturally leads to greater profitability potential, making this an important KPI across the entire business.
Why Knowing Your CAC Matters
As a business-level metric, CAC tends to be an easy check for sustainable revenue and success in eCommerce.
Put simply, your average CAC needs to be below your average order value (AOV) to turn a profit. If that is not the case, lowering your CAC through more effective marketing or improving AOV through raising your product price, offering loyalty programs, and other tactics becomes essential.
CAC can also be an effective measure of the competitive environment. The reason CAC has increased by 60% in recent years is likely due to higher competition.
How to Calculate CAC
You can measure your CAC with this simple formula:
customer acquisition cost formula
Total sales and marketing costs can include:
The salary or contract cost of anyone involved in your gcash databasemarketing effort. If they work on marketing part-time, only calculate their salary in that same fraction.
Any overhead like equipment or office space spent on your marketing staff.
Any tools, from an online store or payment processing system to your email marketing software, that are needed to acquire new customers.
All direct advertising costs for channels like Google, social media, programmatic display, etc.
All costs that are required to get your product into the hands of your customers once you’ve converted them, including packing, shipping, and handling.
As an example, if a company spends $1000 in a year to acquire 20 customers, their CAC would be $50.
When using CAC to make business decisions, remember that consistency is key. Measuring CAC over time can only yield reliable insights if the same types of costs are included in the formula each time you benchmark your efforts.
For online merchants, these costs can vary widely. CAC includes not only the price of related marketing campaigns but also storing and shipping the actual product, as well as the cost of any marketing or sales professionals who have worked to procure the customer.
In other words, this is a business-level metric. A lower customer acquisition cost naturally leads to greater profitability potential, making this an important KPI across the entire business.
Why Knowing Your CAC Matters
As a business-level metric, CAC tends to be an easy check for sustainable revenue and success in eCommerce.
Put simply, your average CAC needs to be below your average order value (AOV) to turn a profit. If that is not the case, lowering your CAC through more effective marketing or improving AOV through raising your product price, offering loyalty programs, and other tactics becomes essential.
CAC can also be an effective measure of the competitive environment. The reason CAC has increased by 60% in recent years is likely due to higher competition.
How to Calculate CAC
You can measure your CAC with this simple formula:
customer acquisition cost formula
Total sales and marketing costs can include:
The salary or contract cost of anyone involved in your gcash databasemarketing effort. If they work on marketing part-time, only calculate their salary in that same fraction.
Any overhead like equipment or office space spent on your marketing staff.
Any tools, from an online store or payment processing system to your email marketing software, that are needed to acquire new customers.
All direct advertising costs for channels like Google, social media, programmatic display, etc.
All costs that are required to get your product into the hands of your customers once you’ve converted them, including packing, shipping, and handling.
As an example, if a company spends $1000 in a year to acquire 20 customers, their CAC would be $50.
When using CAC to make business decisions, remember that consistency is key. Measuring CAC over time can only yield reliable insights if the same types of costs are included in the formula each time you benchmark your efforts.