Customer acquisition cost, LTV:CAC and payback period
What a customer costs to win, how long they take to pay you back, and whether the two numbers leave a business behind.
Customer acquisition cost, or CAC, is what you spend to win one new customer: total sales and marketing spend divided by the number of new customers it produced. Spend $10,000 and acquire 200 new customers and your CAC is $50. It only means something next to two other numbers: what that customer is worth, and how long they take to pay you back.
What is customer acquisition cost (CAC)?
Customer acquisition cost is the average amount you spend to acquire one new customer. It includes advertising, agency fees, marketing tools and any sales cost, divided by the number of new customers those efforts produced in the same period. If $10,000 of marketing brought in 200 new customers, your CAC is $50 per customer.
The word new is doing real work. If you divide total marketing spend by total orders, you get a cost per order that is flattered by every repeat purchase from customers you already paid for. CAC is specifically the cost of buying someone who was not a customer before, which is what makes it a growth number rather than an efficiency one.
How to calculate CAC
Add up everything you spent to acquire customers in a period, then divide by the number of new customers acquired in that period. Include ad spend, agency and freelancer fees, marketing software, affiliate commissions and any discount given specifically to win the first order. Divide by new customers only, never total orders.
- Choose a period, usually a month.
- Total your acquisition spend: ads, agencies, tools, affiliates, first-order discounts.
- Count NEW customers in that period, not total orders.
- Divide spend by new customers. That is your CAC.
One honest wrinkle: some of your new customers arrive from organic search, word of mouth and email, and cost nothing directly. Dividing all paid spend by all new customers gives blended CAC, which is lower than paid CAC and is the number most ecommerce operators actually track. Just be clear which one you mean, because they can differ by a lot.
What is the difference between CPA and CAC?
CPA, cost per acquisition, is usually the cost of one conversion, which might be any order including a repeat one. CAC is the cost of one new customer. On a store with strong repeat business, CPA looks far cheaper than CAC because repeat orders cost nothing to acquire. They are close cousins, but only CAC tells you what growth costs.
Ad platforms report CPA, because a platform can see conversions but not whether the buyer was already your customer. That is why CPA on its own understates what you are paying to grow. If your CPA is $30 and your CAC is $50, the gap is the repeat business quietly subsidising your reported numbers.
What is a good LTV to CAC ratio?
The widely cited benchmark is 3:1, meaning a customer is worth three times what they cost to acquire. Below 1:1 you lose money on every customer. Around 1:1 to 2:1 the business is fragile. Much above 4:1 or 5:1 often means you are underspending and could profitably buy more customers than you are buying.
| LTV:CAC | What it usually means |
|---|---|
| Below 1:1 | Losing money on every customer acquired |
| 1:1 to 2:1 | Fragile — little room for overhead or error |
| 3:1 | The conventional healthy target |
| Above 5:1 | Likely underspending; there may be growth left on the table |
Use profit-based lifetime value, not revenue, or the ratio flatters you badly. A customer who spends $300 across their life at a 40 percent margin is worth $120 in profit, not $300. Against a $50 CAC that is a 2.4:1 ratio, not the 6:1 the revenue figure would suggest.
For how to calculate lifetime value itself, including average order value and purchase frequency, see the customer segmentation and lifetime value guide. This page deliberately covers the cost side.
What is CAC payback period?
CAC payback period is how long it takes a new customer to generate enough profit to repay what you spent acquiring them. Divide CAC by the profit that customer produces per month. A $50 CAC against $25 of monthly profit pays back in two months. It measures cash flow risk rather than profitability: a customer can be worth a lot and still take too long to pay.
For most ecommerce brands, the sharpest version is simply whether the first order pays back the acquisition cost. If it does, growth funds itself and you can spend aggressively. If it does not, every new customer is a loan you are making to yourself, and scaling spend drains cash even while the LTV:CAC ratio looks healthy on paper.
That is why payback and ratio must be read together. A 4:1 ratio with an eighteen month payback will run a growing business out of cash long before that lifetime value arrives.
Common CAC mistakes
The frequent errors are dividing by total orders instead of new customers, counting only ad spend while ignoring agency fees and tools, comparing CAC against revenue-based lifetime value instead of profit, and ignoring payback period entirely. Each one makes acquisition look cheaper or more sustainable than it is.
- Dividing by all orders, so repeat purchases hide the real cost of growth.
- Counting media spend only, leaving out agencies, tools and affiliate commissions.
- Using revenue lifetime value instead of profit, inflating the ratio by your entire cost of goods.
- Ignoring first-order discounts, which are an acquisition cost in everything but name.
- Watching the ratio but not the payback period, and running out of cash while technically profitable.
How to track CAC on Shopify
Shopify records orders and can tell you which customers are new, but it holds no advertising spend. Each ad platform holds its own spend but cannot see your repeat business. Calculating CAC therefore means combining both, either by exporting into a spreadsheet each month or by connecting your ad accounts to a tool that holds spend and customers together.
Margio connects Meta and Google Ads and reports blended CPA and customer acquisition cost beside your real order data, along with lifetime value, repeat purchase rate and the new versus returning split, so the cost side and the value side sit in the same view rather than in two spreadsheets.
Because Margio also knows your product costs and per order fees, the lifetime value it reports can be read as profit rather than revenue, which is the version that makes the LTV:CAC ratio honest.
Frequently asked
How do you calculate CAC for a customer?
Divide total acquisition spend for a period by the number of new customers won in that period. Include advertising, agency fees, marketing tools, affiliate commissions and first-order discounts. Dividing by total orders instead of new customers is the most common error and understates the true cost.
What is a good customer acquisition cost?
There is no universal figure, because CAC only means something relative to what a customer is worth. A $50 CAC is excellent if customers generate $200 in profit and ruinous if they generate $40. Judge it against profit-based lifetime value, aiming for roughly 3:1, and against your payback period.
What is a good CAC payback period?
For ecommerce, the strongest position is payback on the first order, which lets growth fund itself. Under three months is generally healthy. Beyond twelve months, growth consumes cash faster than customers repay it, which is dangerous for a business without outside funding regardless of how good the ratio looks.
What is the LTV to CAC ratio?
It compares what a customer is worth over their lifetime against what they cost to acquire. A customer worth $150 in profit who cost $50 to acquire gives a 3:1 ratio. Use profit rather than revenue for lifetime value, or the ratio overstates the health of the business by your entire cost of goods.