Customer acquisition costs measure the total cost of your sales and marketing efforts to earn a new customer in a specific time period.<\/p>\n\n\n\n
The equation to find your CAC is straightforward: Divide all the costs spent on acquiring new customers (e.g., sales and marketing expenses) by the number of customers acquired in the same time period.<\/p>\n\n\n\n For example, if a company spent $1,000 on sales and marketing in a year and acquired 100 customers in the same year, their customer acquisition cost is $10.<\/p>\n\n\n\n When measuring CAC, though, you may want to track two different versions of the metric. New CAC<\/strong> counts only first-time customers in the denominator and only the spend aimed at winning them. Blended CAC<\/strong> puts every order in the denominator (including repeat buyers), and every dollar of sales and marketing spend on top. Blended CAC is always the smaller number, which is why it gets quoted, but it hides the cost of the hardest job: convincing someone who has never bought from you.<\/p>\n\n\n\n A good customer acquisition cost is one that is lower than the lifetime value of a customer, and the common rule of thumb is an LTV to CAC ratio of 3:1. In other words, the lifetime value of a customer should be at least three times the cost of acquiring them.<\/p>\n\n\n\n However, the ratio does have two limits. First, it moves with your business model and growth stage, so a SaaS company or a startup buying awareness will run a higher CAC than an established ecommerce brand and still be healthy. Second, it says nothing about payback: a 3:1 ratio recovered over four years will tie up cash that a 2:1 ratio recovered in six months does not.<\/p>\n\n\n\n Ultimately, a \u201cgood\u201d CAC is one that aligns with your business goals, ensures profitability, and supports sustainable growth.<\/p>\n\n\n\n CAC and CPA are very similar and useful metrics, but there is one key difference: CAC measures the cost to acquire a paying customer<\/em>, while CPA measures the cost to acquire a lead<\/em>, for example, a registration, activated user, or a sign-up for a free trial.<\/p>\n\n\n\n Because customer acquisition cost measures the cost of converting a customer, it can encompass all types of marketing channels. It\u2019s a metric that can be applied to your business as a whole, giving you a big-picture view of your relationship with the average paying customer as opposed to a campaign-specific view.<\/p>\n\n\n\n But not all customer acquisitions are the same. Acquiring customers doesn’t begin and end with clicking a purchase button. Some businesses have short paths to purchase while some lead times take months or years. And if you sell something people replace every few years, a second order from the same household counts as retention rather than acquisition, however long the gap.<\/p>\n\n\n\n Different companies also cater to different audiences, use different campaigns, and utilize different ways to guide customers through the customer lifecycle<\/a>. To understand these nuances, metrics like cost per acquisition are helpful.<\/p>\n\n\n\n This is because cost per acquisition is more of a campaign-level metric. CPA looks at the cost to acquire a lead (not yet a paying customer) who took an action that you wanted them to take, like downloading an e-book, submitting a demo request, or any other submission of contact information with intent.<\/p>\n\n\n\n Since cost per acquisition measures conversion goals, which aren’t necessarily purchases and can vary from campaign to campaign, calculating one CPA for your overall business is a difficult task. There are very different factors and costs to converting Facebook ads, email campaigns<\/a>, and SMS campaigns.<\/p>\n\n\n\n That’s why CPA is traditionally used to measure the specific cost\/profit ratio of particular marketing channels, and the varying factors for each channel make each calculation its own unique equation.<\/p>\n\n\n\n For context, here are some simple ways to understand the difference between CAC and CPA:<\/p>\n\n\n\n A CPA can\u2019t be judged against lifetime value on its own, because the action it measures hasn\u2019t produced a customer yet. A good CPA is one that still leaves room for profit once you account for how many of those actions turn into paying customers. Here are some general guidelines:<\/p>\n\n\n\n Ultimately, a good CPA is one that produces customers at a CAC your LTV can carry.<\/p>\n\n\n\n If you run an ecommerce business, your customer acquisition cost is a crucial statistic. Calculating, understanding, and optimizing your CAC should be a top priority.<\/p>\n\n\n\n Cost per acquisition has its place, and measuring each channel’s CPA can shed light on important aspects of your CAC, but your marketing strategy won’t get far without a strong grasp of your customer acquisition cost.<\/p>\n\n\n\n Calculating your CAC is similar to checking the pulse of your business. Measuring how much your business is spending to acquire customers can determine the vital next steps for your company, whether that means optimizing your customer lifetime value<\/a> (LTV) or completely reassessing the cost\/profit ratio of your business as a whole.<\/p>\n\n\n\n This is especially true in relation to your LTV, a measure of a customer’s monetary value<\/a> to a company over a period of time.<\/p>\n\n\n\n The balance between your CAC and LTV is one of the most important relationships a business needs to keep under control. It’s no exaggeration that this relationship will tell you whether or not your business can succeed.<\/p>\n\n\n\n Luckily, this correlation between CAC and LTV is easy to understand.<\/p>\n\n\n\n Simply put, if you want to know if your ecommerce business is in good shape, your customer acquisition cost needs to be lower than your customer lifetime value.<\/strong><\/p>\n\n\n\n This ratio lets you know how much your business can spend to acquire enough customers without spending more than the value those customers will bring to your company.<\/p>\n\n\n\n Let’s take a look at how you can implement these ideas in your marketing tactics and how these calculations work in practice.<\/p>\n\n\n\n First, let’s see how customer lifetime value and customer acquisition cost work together to illustrate the health of your business.<\/p>\n\n\n\n Consider Company A, for example. Company A’s LTV is $40, and its CAC is $45.<\/p>\n\n\n\n With a customer acquisition cost that\u2019s greater than its customer lifetime value, Company A is doomed to fail. Even if the company becomes one of the most popular brands in the world, it can’t sustain a business model where the cost to acquire a customer is greater than the value they offer.<\/p>\n\n\n\n This may seem obvious, but many ecommerce companies haven’t taken the time to calculate these metrics and understand the repercussions for their business. They may be paying more than they can possibly make back, without even knowing it.<\/p>\n\n\n\n It’s also important to know how much higher your LTV is than your CAC, as it will inform how quickly your company’s revenue will grow.<\/p>\n\n\n\n Let’s compare the metrics of two more example companies, Company B and Company C.<\/p>\n\n\n\n Even though Company C makes $200 per customer and Company B makes $30, the CAC to LTV ratio shows that Company B will be able to scale twice as quickly. It costs less per customer to get more value, making its business model much more sustainable with the ability to grow revenue faster.<\/p>\n\n\n\n You can also use this ratio to examine paying customers within individual channels and campaigns. If you calculate the customer acquisition cost for each of your separate marketing channels, you’ll know which of these bring you the more affordable customers. Combine that with your LTV, and you’ll know which channel brings you the most valuable customers overall.<\/p>\n\n\n\n If you’re looking to lower your CAC, it can be hard to know where to start.<\/p>\n\n\n\n Is the cost of your marketing a problem? Are you paying too much to bring a visitor to your site? Or is the issue that you just aren’t converting enough of them?<\/p>\n\n\n\n Customer acquisition cost is a metric that deals with the full scope of your business, so drilling down on a few key areas and addressing these kinds of questions is the best way to make a big impact.<\/p>\n\n\n\n Here are a few key ideas to consider.<\/p>\n\n\n\n Zeroing in on your best-performing channels and optimizing them for acquisitions can go a long way towards driving down your customer acquisition cost.<\/p>\n\n\n\n The same logic applies to individual campaigns. Divide the cost of each campaign by the number of visitors gained to find your best acquisition campaigns, then replicate what works.<\/p>\n\n\n\n Google and Meta build lookalike audiences from the seed list you give them. Most retailers hand over everyone who has ever bought, or let the platform’s own audience builder choose, and the platform fills in the rest from what it can see: clicks, conversions, and behavior on its own network. It can\u2019t see margin, return rates, repeat purchases, or which of your customers only ever buy on a discount, because that data sits in your systems and never reaches the platform. Seed a lookalike with a list that includes one-time discount buyers and serial returners, and you pay to find more of them.<\/p>\n\n\n\n Instead, you should change who you\u2019re telling the platform to find while keeping the budget the same. This requires a seed built from customers who are both valuable and responsive to ads, and exclusion lists that keep the campaign away from people who will never pay back. Whatever tool you use to build them should be held to that test.<\/p>\n\n\n\n Knowing your customers is the best way to improve your targeting techniques. Understanding their behaviors, preferences, and segments streamlines your efforts and cuts wasted spend.<\/p>\n\n\n\n Make sure your ad spending is always aimed at customer acquisition:<\/p>\n\n\n\n If you’re getting a good amount of traffic but not enough of it is converting, these ideas can lower your conversion costs:<\/p>\n\n\n\n Optimize your customer journey.<\/strong> Analyze your traffic and campaigns to see where you’re losing customers. Which stages in the buying process see the most drop-off? A\/B test<\/a> different variations of your customer experience based on your analysis. Once you know where you\u2019re leaking customers, you can orchestrate your ideal customer journey<\/a>.<\/p>\n\n\n\n Cater to returning visitors.<\/strong> Personalize<\/a> your site to include recommended content. Inspire users revisiting your site with recommendations based on previous browsing history.<\/p>\n\n\n\n For example, On the Beach, the UK holiday-package company, logs the hotel and price that a visitor viewed as an event on their profile, tracks that hotel’s price daily for the seven days around their travel dates, and sends an email the moment it drops. In a three-day 50\/50 split test, the visitors who got the price-drop email<\/a> produced 362% more revenue per visitor than the control. The same visitor, the same acquisition spend, converted because the message arrived on a change they cared about rather than on a send calendar.<\/p>\n\n\n\n Optimize your site’s user experience.<\/strong> A\/B test multiple variants of website modifications. You can test and refine every aspect of your site experience until you find what performs best, whether that means simplifying your homepage or testing the difference between a red, blue, or green CTA button.<\/p>\n\n\n\n Minimize distractions around your point of sale. Don’t let a busy UX stand in the way of conversions. Your product pages should essentially be landing pages leading to the completion of a transaction.<\/p>\n\n\n\n According to McKinsey<\/a>, personalization can reduce customer acquisition costs by as much as 50%, lift revenues by 5-15%, and increase marketing ROI by 10-30%. Companies that grow faster derive 40% more of their revenue from personalization<\/a> than their slower-growing counterparts.<\/p>\n\n\n\n Here’s how personalization directly impacts CAC:<\/p>\n\n\n\n BCG’s Personalization Index<\/a> found that businesses leading in personalization achieve compound annual growth rates 10% higher than laggards, with only 10% of companies qualifying as leaders. That means there’s a significant competitive advantage available to businesses willing to invest in personalization.<\/p>\n\n\n\n One of the fastest ways to improve your CAC economics isn’t to spend less on acquisition. It’s to get more out of the customers you already have. When customers stay longer and buy more, the return on every acquisition dollar multiplies.<\/p>\n\n\n\n Effective retention marketing<\/a> strategies include:<\/p>\n\n\n\n The most efficient businesses balance acquisition and retention spending rather than pouring all their budget into new customer acquisition. When your retention strategy<\/a> is strong, you can afford a higher CAC because each customer delivers more value over time.<\/p>\n\n\n\n Reducing customer acquisition costs isn\u2019t just theoretical. Here are examples of how brands use Bloomreach to improve their acquisition economics.<\/p>\n\n\n\n Telecom brand O2 Slovakia<\/a> was already building lookalike audiences inside Google Ads and Facebook for its acquisition campaigns and not getting the results it wanted. It rebuilt the seeds with Bloomreach from first-party purchase and engagement data, then A\/B tested the two sources head to head, with the platform-built audience as the control in every test. As a result, the brand drove a 37% lower cost per conversion on Google Responsive Ads<\/strong> and a 25% lower cost per conversion on Google Discovery Ads<\/strong>.<\/p>\n\n\n\n British music and entertainment retailer hmv<\/a> spends a large share of its marketing budget on a Google Performance Max (PMAX) campaign, its main top-of-funnel source of traffic. Google automates most of the campaign, but the audience it optimizes toward depends on the signals hmv feeds it.<\/p>\n\n\n\n Using Loomi-powered autosegments, hmv let the model generate hundreds of candidate segments from its own customer properties and metrics, then passed the winners to Google as audience blueprints. After deploying the campaign, hmv saw a 14% lift in revenue week-over-week<\/strong>, 34% more impressions<\/strong>, and a 425% increase in landing page views<\/strong>. Autosegments also surfaced audiences that were unlikely to convert and should be excluded, and found hmv’s most valuable audience, with a revenue per visitor more than 2,800% above the site average (which the team had never targeted).<\/p>\n\n\n\n Craft beer brand BrewDog<\/a> used Bloomreach\u2019s marketing app to personalize email campaigns based on individual customer behavior and preferences.<\/p>\n\n\n\n In a 50\/50 split of 80,000 customers, the half who received personalized emails clicked 15.6% more often<\/strong>, had an 11.5% conversion rate<\/strong>, and generated 13.8% more revenue<\/strong> than the half who received the generic version. Higher conversion rates from the same email list mean a lower effective CAC, because the cost of sending a personalized email is nearly identical to sending a generic one.<\/p>\n\n\n\n To optimize your customer acquisition cost and set your business up for sustainable growth, you need the right data and tools working together. That means real-time customer data, intelligent segmentation, and the ability to personalize every touchpoint.<\/p>\n\n\n\n That’s exactly what Loomi<\/a>, our AI for customer engagement, delivers. It combines a customer data foundation with AI that understands every customer in context, then personalizes their experience in real time across email, web, mobile, ads, and more.<\/p>\n\n\n\n With the power of Loomi, you can:<\/p>\n\n\n\n See how our solutions help you build an ad audience from your own customer data and sync it to Google and Meta. Request a demo<\/a> to see where your business stands today.<\/p>\n\n\n How do you calculate customer acquisition cost?<\/p>\n ![\"Customer](\"https:\/\/www.bloomreach.com\/wp-content\/uploads\/2024\/08\/CAC-vs-CPA_formula-1024x549.png\")
<\/figure>\n\n\n\nWhat Is a Good Customer Acquisition Cost?<\/strong><\/h2>\n\n\n\n
How Is Cost Per Acquisition Different From Customer Acquisition Cost in Marketing?<\/strong><\/h2>\n\n\n\n
![\"Definitions](\"https:\/\/www.bloomreach.com\/wp-content\/uploads\/2024\/08\/CAC-vs-CPA_definitions-scaled.png\")
<\/figure>\n\n\n\nCAC vs. CPA Examples<\/strong><\/h3>\n\n\n\n
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What Is a Good Cost Per Acquisition Ratio?<\/strong><\/h3>\n\n\n\n
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Why Does Customer Acquisition Cost Matter?<\/strong><\/h2>\n\n\n\n
Examples of Customer Acquisition Cost Analysis<\/strong><\/h3>\n\n\n\n
![\"Example](\"https:\/\/www.bloomreach.com\/wp-content\/uploads\/2024\/08\/CAC-vs-CPA_example-1-scaled.png\")
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![\"Example](\"https:\/\/www.bloomreach.com\/wp-content\/uploads\/2024\/08\/CAC-vs-CPA_example-2-scaled.png\")
<\/figure>\n\n\n\nHow To Improve Customer Acquisition Cost<\/strong><\/h2>\n\n\n\n
Identify and Optimize Your Best Channels<\/strong><\/h3>\n\n\n\n
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Change the Seed Audience You Hand the Ad Platform<\/strong><\/h3>\n\n\n\n
Know Your Audience and Sharpen Your Targeting<\/strong><\/h3>\n\n\n\n
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![\"Marketer](\"https:\/\/www.bloomreach.com\/wp-content\/uploads\/2024\/08\/CAC-vs-CPA_audience-segment-scaled.jpg\")
<\/figure>\n\n\n\nOptimize Your Ad Spending<\/strong><\/h3>\n\n\n\n
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Improve On-Site Conversion<\/strong><\/h3>\n\n\n\n
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![\"Marketer](\"https:\/\/www.bloomreach.com\/wp-content\/uploads\/2024\/08\/CAC-vs-CPA_on-site-conversion-scaled.jpg\")
<\/figure>\n\n\n\nUse Personalization To Lower CAC at Scale<\/strong><\/h3>\n\n\n\n
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Retain More Customers To Lower Effective CAC<\/strong><\/h3>\n\n\n\n
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How Bloomreach Customers Improve Their Acquisition Economics<\/strong><\/h2>\n\n\n\n
O2 Slovakia: Lookalike Audiences Tested Against Google’s and Facebook’s Own<\/strong><\/h3>\n\n\n\n
hmv: Smarter Ad Targeting With AI-Powered Segments<\/strong><\/h3>\n\n\n\n
BrewDog: Personalized Email Campaigns That Convert<\/strong><\/h3>\n\n\n\n
Reduce Your Customer Acquisition Cost With Bloomreach<\/strong><\/h2>\n\n\n\n
![\"Marketer](\"https:\/\/www.bloomreach.com\/wp-content\/uploads\/2024\/08\/CAC-vs-CPA_omnichannel-campaign-1024x731.jpg\")
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Frequently Asked Questions <\/h3>\n\n