What is customer acquisition cost (CAC)?

How do you calculate customer acquisition cost?

Pick a period. Add up everything you spent to win new customers in it. Divide by the customers whose first order fell in that period. Leave repeat buyers out: spread $5,250 over all 400 people who ordered and CAC drops to about $13. Shopify's "New vs returning customers" report, under Analytics, then Reports, counts first-time customers for you.

CAC formula example

Shopify's guide to CAC counts ad fees, marketing software, staff and freelancers, content and discounts. Say October looks like this.

Count the ads alone and CAC reads $30, $5 short on every new customer.

What is a good customer acquisition cost?

One your customers pay back three to four times over. Set CAC against customer lifetime value, what one customer spends with you over time. A new buyer who spends $140 in all gives an LTV:CAC ratio of $140 ÷ $35, or 4:1. Shopify's guide to the ratio puts the usual range for online stores at 3:1 to 4:1, and says 2:1 or less may mean you are close to break-even. That $140 still has to cover product cost and overhead, which CAC leaves out.

Where does Shopify show customer acquisition cost?

Shopify's "Performance by marketing channel" report shows CAC for each channel, next to ad spend, ROAS and cost per acquisition. It sits under Analytics, then Reports, in the Marketing category. The CAC column fills in only for channels that report their costs to Shopify, for example a connected ad platform. A row without cost data shows a dash: unknown, not zero. For a full CAC, use the formula above.

How do you lower customer acquisition cost?

Cut the channels whose CAC tops what their customers spend with you over time. Then turn more of your paid traffic into first orders. Say all 150 October customers came from paid visits at a 2% conversion rate. At 2.4%, the same traffic wins 180, and CAC falls from $35 to about $29.