What is customer acquisition cost (CAC)?
How is CAC calculated?
Two choices decide the number. What goes on the top, and who goes on the bottom.
- Top: which costs. Media only, or also agency fees, creative and tools. One agency's guide counts salaries, agency fees, marketing technology and content production, and warns that ad spend alone understates the cost1. Our convention is to count media, fees, creative and tools, and list them. Call it fully loaded CAC.
- Bottom: which customers. New customers only, or everyone who ordered.
Agencies do not agree on "blended CAC". One growth agency divides total marketing spend by all customers acquired, returning buyers included2. Another divides total acquisition spend by all new customers, including those from organic search and referral1. So always ask for the formula behind the label.
Only the second answers "what did a new customer cost?". The first is flattered by people coming back anyway.
Why does CAC matter?
CAC is half of every growth equation. Set it against LTV, what a customer is worth over time. The payback period then shows how many months of margin it takes to repay it. Margin means contribution margin, not revenue.
For ZFD: Our view is that a CAC without its formula is not a number. It is a mood.
Worked example
Easily confused with
CAC vs CPA
Cost per acquisition: ad spend divided by the conversions the platform counts, such as purchases or leads. Not the same as CAC.
CAC vs nCAC
New-customer CAC. Leaves out repeat buyers.
CAC vs MER
Total revenue over total marketing spend. A ratio of revenue to cost, not a cost per customer.
In our view, blended CAC can hide retargeting and organic sales behind one average. Use it only with the formula written out.
Buzzword alert
"CAC is down this month"
Usually means: more returning or organic customers in the bottom of the fraction, not cheaper acquisition.
Ask: what did spend and first orders each do on their own?
"We are scaling at a stable CAC"
Usually means: an average that hides what the extra spend bought.
Ask: how many new customers did the last increase in spend bring?
FAQ
Is CAC the same as CPA?
No. CPA divides spend by conversions the platform counts. CAC divides acquisition cost by customers who are new.
What is a good CAC?
There is no universal figure. A CAC is good or bad only against the margin a customer returns.
What is blended CAC?
What is paid CAC?
One agency's guide defines paid CAC as the cost of customers acquired through paid spend only1. It leaves organic and referral customers out.
Let’s find what’s actually working.
Next step. Put margin under your acquisition numbers with the Is your ROAS real? calculator. The wider picture is in contribution margin.