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Every e-commerce brand faces the same question: how much does it cost to bring in a new customer? That number is captured by Customer Acquisition Cost (CAC), one of the most widely tracked metrics in e-commerce analytics. CAC gives you a clear view of the efficiency of your marketing and sales efforts. Get it wrong, and scaling becomes expensive and unsustainable. Get it right, and your brand can grow profitably.
What is Customer Acquisition Cost (CAC)?
Definition: CAC measures the total cost of acquiring one new customer. It includes all marketing and sales expenses — ad spend, creative production, marketing software, influencer partnerships, and even team salaries — divided by the number of new customers gained in that period.
CAC = (Cost of Sales + Cost of Marketing) / Number of New Customers Acquired
Example: If you spent $20,000 on marketing in a month and acquired 400 new customers, your CAC would be $50.
Tracking CAC consistently helps you evaluate whether your campaigns are cost-effective.
Why CAC Matters in e-commerce analytics
CAC isn’t just about the money you spend — it’s about sustainability. Here’s why e-commerce operators pay close attention:
- Profitability Lens: If your CAC is higher than the revenue a customer brings in, you’re burning cash. That’s where CAC must be paired with LTV (Customer Lifetime Value). A healthy rule of thumb is an LTV:CAC ratio of 3:1.
- Channel Performance: CAC varies by channel. Paid ads may bring fast growth but often at higher costs, while organic channels (SEO, referrals, email) usually reduce CAC over time.
- Scaling Decisions: Investors and operators alike use CAC to judge whether a brand can scale profitably. Rising CAC is often a red flag that the brand is over-reliant on paid ads or has tapped out of a target audience.
In Peel dashboards, you can break down CAC by campaign, channel, and time period to see exactly where spend is effective — and where money is wasted.
How to Improve Customer Acquisition Cost
Lowering CAC is a game of balancing efficiency with retention. Some proven strategies include:
Invest in Retention Marketing
Returning customers cost far less to bring back than acquiring new ones. Tools like Peel help identify high-value cohorts and trigger targeted email or SMS campaigns to reduce churn.
Leverage UGC and Referrals
User-generated content and referral programs turn customers into brand advocates, reducing dependence on expensive paid ads.
Optimize Paid Campaigns
Track CAC by channel and double down on the ones with lower costs. Retire underperforming campaigns faster instead of letting them drain budget.
Focus on Conversion Rate Optimization (CRO)
Improving your site’s conversion rate directly lowers CAC by ensuring more visitors turn into paying customers with the same ad spend.
FAQs
1. What is a good CAC for e-commerce?
It varies by vertical, but many e-commerce brands aim for a CAC that is 1/3rd or less of their LTV. A CAC of $30 with an LTV of $90 would be considered healthy.
2. Can CAC include team salaries?
Yes, CAC includes all sales and marketing costs: ad spend, creative, tools, and salaries of the marketing team.
3. How does CAC relate to LTV?
CAC tells you the cost of acquiring a customer, while LTV tells you the value of that customer over their lifetime. Both must be tracked together to assess profitability.
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