Customer acquisition cost
What is Customer Acquisition Cost (CAC)?
Customer acquisition cost, or CAC, is a key business metric that shows how much money a company spends to acquire each new customer. It usually includes costs related to sales and marketing, such as advertising spend, social media campaigns, sales team salaries, and any outsourced marketing services. To calculate CAC, you divide your total sales and marketing spend over a set period by the number of new customers gained in that same period. For example, if a business spends £10,000 on marketing in a month and gains 200 new customers, its CAC would be £50.
Why does CAC matter for growing eCommerce brands?
Understanding CAC helps businesses measure the effectiveness and efficiency of their marketing efforts. If it costs too much to acquire each customer, your profit margins may suffer, especially if those customers don’t return or spend much over time. To make CAC more meaningful, it’s important to view it alongside other key metrics, such as:
- Customer lifetime value (LTV): How much a customer is expected to spend over their entire relationship with your brand. Ideally, LTV should be several times higher than CAC.
- Customer retention rate: How many customers come back and shop again.
- Churn rate: The percentage of customers lost over a given time frame.
When CAC is too high in relation to LTV, it may signal a problem with your marketing efficiency or retention strategy. On the other hand, identifying channels with a low CAC and high LTV can help you scale your business profitably. By tracking and optimising CAC, eCommerce businesses can make smarter decisions about budget allocation, customer targeting and campaign performance, all while ensuring long-term growth and financial sustainability.
