⚡ THE ESSENTIALS IN 20 SECONDS
- CAC is what it costs to win a new customer: acquisition spend ÷ new customers.
- It is not the same as CPA: CPA counts orders (from new or returning customers); CAC counts only new customers.
- It only makes sense next to LTV: healthy accounts have an LTV several times their CAC.
- In retail media, new-to-brand (NTB) metrics are your best proxy for CAC.
IN THIS ARTICLE
As a brand grows, the question shifts from “how much did I sell?” to “how much did each new customer cost me?”. That is the question CAC answers. If you do not measure it, you may be celebrating sales that come from customers you already had while overpaying to grow.
CAC (Customer Acquisition Cost): the average cost of winning a new customer in a period: acquisition spend divided by the number of new customers gained.
How to calculate it
The base formula is: CAC = acquisition spend ÷ new customers. The hard part is not the division, but deciding which spend counts and how to know who is new.
| Variable | Fictional example (month) |
|---|---|
| Spend on acquisition campaigns | USD 3,000 |
| Attributed new customers | 300 |
| CAC | USD 10 |
On marketplaces, “new customer” data usually comes from new-to-brand (NTB) metrics, which show how much of attributed sales came from people who had not bought your brand recently.
CAC vs CPA: not the same thing
| CPA | CAC | |
|---|---|---|
| What it counts | Every order or conversion | Only new customers |
| Includes repeat purchases | Yes | No |
| Used for | Campaign efficiency | Real cost of growing the customer base |
| Compared with | Order value and margin | Customer LTV |
A campaign can have an excellent CPA because it sells to customers who already knew you, and still a high CAC because it brings almost no new ones.
CAC and LTV: the ratio that matters
CAC only says something when compared with what that customer is worth over time. If a customer costs 10 dollars and their LTV in margin is 75, every dollar invested comes back several times. If CAC gets close to LTV, you are buying customers who leave you nothing.
How to lower CAC and keep growing
- Improve listing conversion: better images, titles and reviews lower the cost of each customer.
- Separate brand and acquisition campaigns: brand searches bring mostly customers who already know you; do not mix them into CAC.
- Target generic and competitor searches: that is where new customers are.
- Use audiences who viewed but did not buy: remarketing usually has a lower CAC than pure discovery.
- Protect contribution margin: an acceptable CAC depends on the margin funding it (contribution margin).
Common mistakes
- Dividing all spend by all sales and calling it CAC.
- Including brand campaigns, which bring mostly returning customers.
- Comparing a launch month’s CAC with a normal month.
- Not reviewing CAC by channel: each marketplace has different costs.
A step-by-step example (fictional)
A pet food brand invested 3,000 dollars in a month. Of that, 750 went to brand campaigns and 2,250 to generic and competitor campaigns. Generic campaigns brought 250 new customers according to NTB. Its real acquisition CAC was 9 dollars (2,250 ÷ 250), not 10 as it looked when dividing everything. With an estimated LTV of 55 dollars in margin, the ratio was about 6 to 1: there was room to invest more in generic terms.
- Separate brand and acquisition spend.
- Use NTB to count new customers.
- Compare CAC with that category’s LTV.
- Review CAC by channel every month.
CAC across channels
Each marketplace has its own CAC. A new customer may be cheaper on one retailer and more expensive on another because of competition, audience size and conversion rates. Track CAC per retailer and move acquisition budget to where new customers cost less, as long as their LTV is similar.
Agency secrets about CAC
What I apply with growing brands:
If a “generic” campaign brings almost no new buyers, it is not acquisition, whatever its name.
Derived from LTV and margin. That way you know when a growth campaign is overspending.
Leadership understands “we won 300 new customers at 10 dollars each” better than any ROAS.
Growing cheaply is not the same as growing well. CAC tells you whether you are buying customers worth having.
I’m Alonso Jiménez, a Retail Media account director. I manage campaigns on Amazon, Walmart, Target, Instacart and Mercado Libre every day, for brands in the US, Mexico and Latin America. Want to build your acquisition strategy around these numbers? See my monthly strategy.
Frequently asked questions
What is CAC?
The average cost of winning a new customer: acquisition spend divided by new customers.
How is it different from CPA?
CPA counts any order or conversion; CAC counts only new customers.
What is a good CAC?
It depends on your LTV and margin. As a guide, LTV should be several times CAC.
How do I measure new customers on Amazon?
With new-to-brand (NTB) metrics in your advertising reports.