CAC: How to Calculate and Reduce Customer Acquisition Cost

CAC is a metric that reflects how much money is spent on acquiring a customer. The higher this figure, the more a brand spends on new customers.

How to Determine CAC

Let's take a closer look at what CAC is.

CAC is one of the key metrics in marketing.

The calculation is based on a simple formula: marketing expenses divided by the number of acquired customers. However, the specifics depend on the objectives. For example, you can calculate the overall CAC for all marketing activities or focus on individual channels to identify unprofitable ones.

Below, we explore different approaches to calculating CAC, with examples.

Calculating CAC for a Specific Channel

To determine CAC for a single channel, use the following formula:

Let’s assume a targeted advertising campaign cost the brand $600 (which would be 45,000 rubles) and brought in 300 customers. The CAC would be calculated as: $600 / 300 = $2 per customer.

This calculation shows the average cost of acquiring a customer through that channel.

Calculating Overall CAC for All Marketing Costs

To calculate the total CAC across all advertising channels, use the following formula:

Then, in our example, the company spent $1,600 (which is 120,000 rubles) on search engine ads, which brought in 600 new customers. The total CAC would then be: ($600 + $1,600) / (300 + 600) = $2.13 per customer.

This value reflects the average cost of acquiring a customer across all of the company's advertising campaigns.

CAC with all marketing expenses

Sometimes, when analyzing CAC, not only advertising costs are taken into account but also total marketing expenses. This can include salaries for marketers and targeted ads specialists, payments for designers creating advertising materials, costs for CRM systems and other automation tools, as well as expenses for specialists working on social media promotion.

The formula in this case looks like this:

Let’s assume the company spent $2,500 on advertising, $625 on salaries for specialists, and another $375 on services and tools. These expenses resulted in 1,000 customers. The total CAC would be: (2,500 + 625 + 375) / 1,000 = $3.50.

Limitations of the approach

When indirect costs are taken into account, it becomes difficult to determine their share related to customer acquisition. For example, a marketer might be involved not only in advertising but also in other tasks that don't affect customer acquisition. That's why it's often recommended to consider only direct advertising costs.

Are CAC and CPA the same?

Some companies confuse CAC and CPA — metrics that reflect different aspects of costs. CPA shows how much it costs to complete a specific action, such as submitting a request on a website or registering in an app.

The difference between these metrics lies in the objective. CPA measures the cost of individual steps users take, while CAC helps to understand how much it costs to acquire a customer who is ready to pay for a product or service. CPA is often used to assess the effectiveness of individual advertising stages, such as clicks or registrations, while CAC provides a more general understanding of sales-related costs.

Imagine a situation: a company is promoting a mobile app through social media. People first download it, and then purchase access to additional features. If advertising costs are divided by the number of downloads, you get CPA — the cost per action. If those same costs are divided by those who paid for a subscription, you get CAC — the cost of an actual customer..

CPA and CAC are important metrics in unit economics. To learn more about how this financial tool works, read this article.

What is considered a normal CAC?

It’s simple: the lower this metric, the better. However, it doesn’t make sense to consider it in isolation — it becomes useful only when combined with other metrics, such as average order value or LTV (Lifetime Value).

When considering average order value:

A good CAC (Customer Acquisition Cost) should not exceed the average transaction value. Let's consider two examples: in the first case, acquiring a customer costs $15, and the average transaction value is $200. In the second case, the CAC is $2, and the average transaction value is $2. At first glance, the second option seems more profitable, but in reality, it is unprofitable because the company loses $0.10 on every sale if customers don't return. Meanwhile, in the first example, each sale generates a significant profit.

It makes sense to compare CAC with the average transaction value if there is no data for a more accurate LTV calculation. This is relevant for businesses where customers make one-time large purchases.

How to calculate the average transaction value and how to increase it? Find out in this article.

If we account for LTV:

he ideal CAC should be lower than the LTV (Customer Lifetime Value) — the total value a customer brings to the business. LTV shows how much profit a customer has generated throughout their relationship with the brand. For example, if a person regularly bought items worth $10 per month for a year and then stopped, the customer’s value would be $10 × 12 = $120. By comparing this with acquisition costs, you can assess the effectiveness of your investments.

If the costs for acquiring this customer are $120, the business breaks even. If the CAC is lower, for example, $100, the company makes a profit. But if the customer acquisition cost exceeds $120, it becomes a loss.

Comparing CAC with LTV is more useful than comparing it with the average transaction value. This approach is especially important for businesses that rely on repeat customers, such as subscription services or stores with regular demand (e.g., grocery delivery). Sometimes, the first purchase doesn’t cover the CAC, but if the customer returns, the overall profit exceeds the costs. For example, a gym membership might cost less than acquiring a customer, but with regular renewals, the investment pays off and starts generating profit.

How to Lower CAC

The lower the CAC, the more money the business retains, but the optimal value depends on the specific industry and brand strategy.

If CAC is too high, it can negatively affect the business’s profitability. Here are a few methods to help lower this metric:

Work with current customers. Retaining customers is cheaper than acquiring new ones. A loyal audience is more likely to make repeat purchases, which reduces reliance on acquisition costs. Effective tools include:

• loyalty programs with accumulated bonuses or discounts;
• personalized offers for repeat customers;
• communication through email newsletters, messaging apps, and social media to maintain interest.

For example, if a customer has already purchased home appliances from you, offer them a discount on accessories or maintenance services. This approach encourages repeat purchases without the need for additional advertising costs.

How to work with loyalty programs and personalization? CDP Altcraft — a marketing automation platform — can help you with that. Learn more about loyalty programs here.

Optimizing Advertising Channels. Not all promotion channels are equally effective. Some may have a CAC that is too high compared to the return. Conduct an audit of all the platforms you use to identify underperforming channels and reallocate your budget. For example:

• If a platform brings in few customers, try a different ad format or switch to more cost-effective traffic sources.
• Test different ads and targeting options to find the best combination.

For instance, if you’re advertising products through Google Ads and VK, and VK ads cost twice as much but yield the same results, it’s better to focus your efforts on Google Ads.

Improving Ad Content. Sometimes the issue is not with the channels but with the content itself. Unsuccessful ads, poor creatives, or a confusing website can drive potential customers away. Check the quality of your:

• Ad copy — it should be clear and engaging.
• Visuals — appealing design and bright images can increase interest.
• Landing pages — ensure that users can quickly find the information they need and make a purchase.

For example, if your landing page is overloaded with text or not mobile-friendly, users may simply leave.

How to write a truly effective landing page? Find out in this article.

Analysis and Testing. CAC is not a static metric. It can change depending on new marketing approaches or external factors, such as competition. Regularly testing different strategies helps identify the most effective methods. This can include:

• Changing the target audience.
• Using new ad formats, such as video instead of static banners.
• Testing other platforms for placement.

For example, if you’ve always advertised on social media, try using email marketing. It can yield good results with proper database segmentation..

In the end, managing CAC requires continuous analysis and effort. Success depends on your ability to adapt flexibly to market changes and find the most effective ways to engage with customers.

Conclusion

CAC is an important metric that helps a business understand how much it costs to acquire one customer. Proper management of this metric is critical for a company's success, as it directly impacts profitability and business sustainability. It's important not only to aim to reduce CAC but also to find a balance between acquisition costs and revenue from customers.

Regular analysis, optimization of advertising channels, and working with existing customers will help maintain this metric at the desired level.

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