Customer acquisition cost (CAC) is what it costs you to win one new customer. You work it out by dividing your total sales and marketing costs for a period by the number of new customers you won in that same period.
CFI describes CAC as the resources and costs spent to win an additional customer, and says it's commonly used alongside customer lifetime value to measure the value a new customer generates. The formula works in whatever currency you trade in, and it's the same for a SaaS company, an online shop or a service business.
The CAC formula
CFI writes it like this:
CAC = sales and marketing expenses / number of new customers acquired in the same period
The words that matter are "same period" and "new". If you take a quarter's costs, you count that quarter's new customers. Mix a year of spend with three months of sign-ups and the number means nothing.
The catch: most people undercount the top and overcount the bottom
The formula is the easy part. Being honest with it's harder, and there are two ways it goes wrong.
The cost side is too small. Ad spend alone flatters your CAC. CFI says sales and marketing expenses include advertising and marketing spend, commissions and bonuses, the salaries of marketers and sales managers, and the overheads tied to sales and marketing. Shopify's list adds software, discounts and content. Here's the full set from both sources:
| Cost to include | Why it belongs in CAC |
|---|---|
| Advertising fees (PPC, social ads, traditional media) | Direct spend to win the customer |
| Marketing and sales salaries, bonuses, commissions and freelancers | The people who turn a lead into a buyer |
| Marketing software and tools (CRM, analytics, email) | The systems your funnel runs on |
| Discounts and promotional offers | Value you give away to win the first sale |
| Content creation | Blogs, video and graphics that attract buyers |
| Sales costs | Extra costs tied to the sales process |
To show how far beyond ads this goes, Shopify quotes Tom Jauncey of Nautilus Marketing, whose CAC budget breaks down as 40% ad spend, 30% salaries, 15% software, 10% content creation and 5% sales costs. On that split, a CAC built on ad spend alone would leave out most of the real cost.
The customer side is too big. Shopify is clear that the number of new customers means first-time customers only. Returning or retained customers are excluded, because CAC measures the cost of attracting new business, not keeping existing customers. Count repeat buyers and your CAC looks cheaper than it should.
How to calculate customer acquisition cost in five steps
- Pick one period, such as a month or a quarter.
- Add up every sales and marketing cost for that period, using the table above as your checklist.
- Count first-time customers only for the same period.
- Divide the total cost by the new customer count. That's your CAC.
- Compare it with what a customer is worth, using the profit check and the ratio below.
Is your CAC good? Compare it with what a customer is worth
A CAC figure on its own tells you very little. CFI's channel example shows why. A company works out CAC for each channel it uses, and Social Media comes out lowest while Social Events comes out highest. If each customer is worth $60 to the business in CFI's example (as of October 2026), the channels with a CAC below $60 (Social Media and Posters) improve profitability, and the channel above it doesn't.
Shopify gives two checks you can run on your own numbers:
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- The profit check. Multiply customer lifetime value by your gross margin to get profit per customer. In Shopify's example, a 40% gross margin on a CLV of $300 gives $120 of profit per customer. If your CAC is higher than that, you're spending more to win the customer than they bring back.
- The CLV to CAC ratio. Shopify works out CLV as average revenue per customer multiplied by average customer lifespan, then divides it by CAC. A ratio between 3:1 and 5:1 means your acquisition is working efficiently. Above that range, you may not be investing enough in growth. Below it, you need to raise CLV or cut CAC.
I'll keep lifetime value brief here, as it has its own page. The point for CAC is that the profit check uses gross profit, not revenue, and this guide to gross profit and net profit explains the difference if you need it. Shopify also defines the CAC payback period as the time it takes to recoup what you spent acquiring a customer, which is worth tracking if cash is tight.
Three ways to bring CAC down
Shopify's three tips are to improve your site's SEO, find your most effective marketing channels and focus on high-value customer segments. Its case studies put some numbers on the first two:
- Renaissance Digital Marketing reports organic traffic up 45% in six months and a 30% CAC reduction.
- Nautilus Marketing reports about a 15% CAC reduction in around six months by moving budget to its best-performing channels.
Organic channels matter here because content keeps working after you've paid for it. This guide to using content for customer acquisition goes further into that side.
Where I come in
I work with SaaS marketing teams and small businesses on the question behind this number: what does a customer really cost, and which channels are worth more of the budget? That means counting the full cost side, splitting CAC by channel and putting the effort where the profit check says it pays. You can see how I work on my work with me page.
My verdict on CAC
The formula is simple, the honesty is the hard part. Count salaries, software, content and discounts, not just ads, and count first-time buyers only. Then ask one question: does a customer's gross profit beat what you paid to win them? CFI warns that many companies fail because they don't fully understand their CAC, so it's worth an hour with a spreadsheet every quarter.
Frequently asked questions
What is the formula for customer acquisition cost?
CAC equals your total sales and marketing expenses for a period divided by the number of new customers you acquired in that same period.
Should returning customers be included in CAC?
No. Shopify says the customer count should only include first-time customers, because CAC measures the cost of winning new business, not keeping existing customers.
What costs go into CAC?
Advertising, marketing and sales salaries, commissions and bonuses, freelancers, marketing software, discounts and promotions, content creation and other sales costs for the period.
What is a good CLV to CAC ratio?
Shopify says a ratio between 3:1 and 5:1 means your acquisition strategy is working efficiently. Below that, raise lifetime value or cut CAC.
