Back to Blog

What is CAC? A Guide to Customer Acquisition Cost

Published on October 07, 2025 by Max Wang

In the competitive world of e-commerce, acquiring new customers is the engine of growth. But how much are you actually spending to get each one? If you don't know this number, you're flying blind. This is where Customer Acquisition Cost (CAC) comes in. Understanding and tracking your CAC is vital for sustainable growth, and our free CAC Calculator is the perfect tool to start with.

What is CAC and Why is it So Important?

Customer Acquisition Cost (CAC) is the total cost a business spends on sales and marketing to acquire a single new customer over a specific period. It answers the fundamental question: "How much does it cost me to get one person to buy from my store?"

The CAC Formula:

The basic formula for how to calculate CAC is simple:

CAC = (Total Marketing & Sales Costs) / (Number of New Customers Acquired)

Your "Total Costs" should include ad spend, salaries of the marketing team, software subscriptions (e.g., email marketing tools), creative costs, and more.

How to Use a Customer Acquisition Cost Calculator

Our Customer Acquisition Cost Calculator streamlines this process:

  1. Input Total Marketing & Sales Spend: Enter the total amount you spent on acquisition efforts for a specific period (e.g., last month).
  2. Input Number of New Customers: Enter the total number of new customers you acquired in that same period.
  3. Calculate Instantly: The tool immediately gives you your CAC for that period.

The Golden Ratio: CAC vs. LTV

Knowing your CAC is only half the story. To understand if your CAC is "good," you must compare it to your Customer Lifetime Value (LTV) — the total revenue you expect from a single customer over their lifetime. The relationship between these two metrics determines your business's long-term profitability.

  • A healthy LTV:CAC ratio for most DTC brands is considered to be 3:1 or higher. This means for every $1 you spend to acquire a customer, you get $3 back in lifetime revenue.
  • An LTV:CAC ratio of 1:1 means you're losing money with every new customer (once you factor in product costs).
  • A very high ratio (e.g., 5:1 or more) might indicate you're under-investing in marketing and could be growing faster.

5 Proven Strategies to Lower Your CAC

If your CAC is too high, don't panic. Here are actionable ways to reduce it:

  • Improve Conversion Rate (CRO): Optimize your landing pages, product descriptions, and checkout process to convert more visitors into customers.
  • Refine Ad Targeting: Narrow your ad audiences to focus only on those most likely to buy. Use negative keywords and lookalike audiences.
  • Leverage Organic Channels: Invest in SEO and content marketing. While it takes time, acquiring customers through search is often cheaper in the long run.
  • Implement a Referral Program: Encourage your existing happy customers to refer new ones. Word-of-mouth is a powerful and low-cost acquisition channel.
  • Increase Customer Retention: Focus on email marketing and creating a great post-purchase experience. It's cheaper to keep an existing customer than to acquire a new one.

Conclusion

Tracking your Customer Acquisition Cost is non-negotiable for building a scalable and profitable e-commerce business. It provides the clarity needed to make smart decisions about your marketing budget and strategy. Start tracking this vital metric today with the free CAC Calculator from mktgrowkit.