What is CAC?
Reviewed by CA Apurav GargLast reviewed
In short
CAC (customer acquisition cost) is what a business spends on marketing and sales to win one new customer: the spend for a period divided by the number of new customers gained in that period.
The formula
CAC = acquisition spend in the period ÷ new customers acquired in the period
- Acquisition spend is the marketing aimed at new customers: performance ads, influencer and affiliate payouts, sampling, and the cost of the people or agency running them. Leave out spend aimed only at existing customers, such as retention emails, or work out CAC both with and without it and say which you used.
- New customers are people placing their first order. Count customers, not orders, and leave out first orders that were cancelled, returned or came back as RTO.
Blended and paid CAC
- Blended CAC divides all acquisition spend by all new customers, including those who found you through search, word of mouth or a marketplace.
- Paid CAC divides paid spend by the new customers the ad platforms credit to that spend.
Blended CAC is harder to flatter, because it does not rely on the ad platforms' attribution. Paid CAC helps compare one channel with another. Report both, and watch the gap: if blended CAC rises while paid CAC looks steady, organic acquisition is slowing.
Reading CAC with LTV and payback
CAC alone does not say whether growth is healthy. Compare it with:
- LTV: the contribution a customer brings over their life with you. Many investors look for LTV well above CAC, measured on contribution margin, not revenue.
- Payback period: how many months of a customer's orders it takes to earn back their CAC from CM2. A short payback needs less working capital to grow.
The break-even ROAS sets a maximum CAC for a first order: if a customer's first order earns ₹350 of CM2 before marketing, spending more than ₹350 to win them loses money unless they come back.
Marketplaces
On a marketplace you usually cannot see who is a new customer, so CAC is rarely measurable there. Use ACoS or ROAS for marketplace ads and keep CAC for channels where you own the customer data, such as your website and app.
Common mistakes
- Dividing total marketing spend by all orders, which gives cost per order, not CAC.
- Leaving out agency fees, creative production or influencer product costs.
- Comparing a festive-season CAC with a normal month's. Compare like periods.
Example in rupees
A D2C brand's website for one quarter:
| Figure | Amount |
|---|---|
| Performance ads (Meta, Google) | ₹6,00,000 |
| Influencer and affiliate costs | ₹1,50,000 |
| Agency retainer for paid media | ₹50,000 |
| Acquisition spend | ₹8,00,000 |
| New customers (first order in the quarter, not returned) | 2,000 |
| Blended CAC: ₹8,00,000 ÷ 2,000 | ₹400 |
The first order's CM2 is ₹350, so the brand loses ₹50 on each new customer's first order. If customers place, on average, two more orders in the next year, each earning ₹350 of CM2 at lower marketing cost, the brand earns the ₹400 back during the second order. That is the CAC payback. The figures are illustrative.
Related terms
Work it out for your business
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General information only, not professional advice. Rules and rates change — check the official source before you act.