How to Calculate Customer Acquisition Cost Properly

Customer acquisition cost (CAC) tells you what it costs to gain a new customer. The basic formula is simple. The useful calculation requires discipline.

CAC = total sales and marketing costs for a period ÷ new customers acquired in the same period

What to include

• Advertising and media spend
• Agency, freelancer and creative production fees
• Marketing and sales salaries or allocated time
• CRM, email, analytics and campaign software
• Influencer, affiliate and referral costs
• Acquisition discounts and introductory offers
• Events, samples and sales commissions

Shopify’s CAC guidance also stresses including the costs that support conversion, rather than treating advertising spend as the whole number.

Worked example

Suppose a business spends $8,000 on media, $3,000 on creative and agency support, $2,000 on tools and $5,000 in allocated marketing and sales time. It acquires 300 genuinely new customers.

Total acquisition cost is $18,000. CAC is $18,000 ÷ 300 = $60 per new customer.

If the business had divided media spend alone by customers, it would have reported $26.67—less than half the true figure.

Separate new and returning customers

Returning customers should not be counted in the denominator for acquisition CAC. Measure retention separately, then compare both against customer value. Use the customer lifetime value formula and retention rate calculation.

Segment the calculation

A blended CAC can hide expensive channels or valuable customer groups. Where the data is reliable, calculate CAC by channel, campaign, offer, customer segment and geography. Keep attribution limitations visible; do not manufacture precision from incomplete tracking.

Compare CAC with contribution and payback

CAC is not good or bad in isolation. Compare it with:

• Contribution margin from the first sale
• Expected contribution over the customer relationship
• Refunds and fulfilment costs
• Time required to recover the acquisition cost
• Cash available to fund that delay

A customer who generates $150 in revenue is not necessarily valuable if product, fulfilment, support and acquisition costs consume it. Use the contribution margin formula before scaling.

Common CAC errors

• Using ad spend only
• Counting all orders instead of new customers
• Mixing costs and customers from different periods
• Ignoring discounts and sales labour
• Using revenue instead of margin to judge affordability
• Assuming lifetime value without cohort evidence

Track CAC alongside the sales metrics every owner should know. Then use it to set a grounded marketing budget, not as a number to admire after the money has been spent.

General information only. Every business is different; use your own figures and seek professional advice where appropriate.