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Customer acquisition cost (CAC)

Customer acquisition cost is what a store spends to win one new customer, meaning a person who places their first order.

How it works

CAC divides the money spent on winning new customers by the number of people who bought for the first time in the same period. Orders from people who had bought before stay out of the count. The store decides which costs go in, so two CAC figures are comparable only when counted the same way.

A customer is worth the first order plus the orders that follow, so a store weighs CAC against customer lifetime value in the LTV:CAC ratio. That ratio shows how much a store can lose on the first order. There is no single benchmark: it depends on margin, order value and how often customers come back.

Formula

Acquisition spend ÷ number of new customers

Ways to calculate

  • All marketing costs. Shopify adds up advertising, marketing software, staff, discounts and content, and divides by first-time customers only (Customer Acquisition Cost (CAC): Calculate and Reduce It).
  • Ad spend only. CAC is campaign cost divided by the new-customer conversions in the Google Ads segment for new and returning customers (Segments). Google says the segment typically measures the impact of the new customer acquisition goal. Google’s definition of “returning” differs by conversion type, so the segment may not match the store’s order history.

Example

Example store, not client data.

The tableware shop spends 40,000 on ads in a month and gets 300 orders, 180 of them from first-time buyers. Ad-only CAC = 40,000 ÷ 180 = 222, while the cost per conversion is 40,000 ÷ 300 = 133. With an agency fee of 8,000 added, CAC = 48,000 ÷ 180 = 267.

Not to be confused with

TermHow it differs
Cost per conversionSpend per order, repeat orders included: 133 in the example, against a CAC of 222.
Break-even CPAThe most one order can cost before it loses money. CAC is weighed against everything the customer brings.

Right and wrong readings

  • Wrong: “A CAC of 222 on an average order value of 600 means every new customer pays off at once.” Right: at a 35% margin the first order leaves 600 × 0.35 = 210 after the cost of goods, less than 222. The difference has to come from later orders.

Sources