What is the Average Customer Acquisition Cost (CAC) for eCommerce Stores?

Customer acquisition cost (CAC) is an important measure for any eCommerce business.

It plays a big part in profitability – no matter how many sales you’re getting, and how much revenue you’re pulling in, your business could still be failing if you’re spending an absurd amount of money to acquire new customers.

If you’re unsure about what customer acquisition cost means, or whether or not yours is at an acceptable level, this post is for you. 

We’ll break it down for you, with some benchmarks for different industries, and share some tips on putting your CAC in context, before giving advice on reducing your CAC and building a more profitable eCommerce business.

What is Customer Acquisition Cost?

Customer acquisition cost, commonly shortened to CAC, is the average amount of money your business spends to gain a new customer.

It takes into account sales, marketing and operational costs that go into attracting buyers.

Think about someone completely new to your brand, and the money you spend to get your product in front of them and nurture them towards making a purchase.

There could be the cost of advertising, creating marketing content, software, employee salaries; these are all elements of CAC.

How to Calculate CAC

You can calculate customer acquisition cost by totaling up the money spent on marketing and sales for a specific period, and dividing that amount by the number of new customers in that period.

So, for example, if you got 100 new buyers in the month of January, and your marketing & sales spend for that month was $7250, your customer acquisition cost works out to be $72.50:

$7250 spend / 100 customers = $72.50

Average Customer Acquisition Cost by Industry

So what makes a good customer acquisition cost?

There are many factors you need to consider alongside CAC, as we’ll explain soon. Looking at CAC alone, without considering any other metrics, is basically useless. One business could be thriving with a $500 CAC, while another could be on death’s door with a $25 CAC.

We can look at some ballpark figures to start with (though this can still vary greatly from business to business).

Here are the average customer acquisition costs in several industries, via Shopify:

• Arts and Entertainment: $21
• Health and Beauty: $127
• Fashion and Accessories: $129
• Home, Furniture, and Garden: $129
• Electronics: $377

Here are the average customer acquisition costs via data from First Page Sage:

• Advertising Specialty / Promotional: $64
• Automotive Parts: $78
• Beauty / Personal Care: $61
• Cannabis / CBD: $72
• Consumer Electronics: $76
• Household Goods: $58
• Fashion / Apparel: $66
• Food & Beverage: $53
• Furniture: $77
• Jewelry: $91
• Medical: $87
• Sporting Goods: $67
• Toys / Hobbies / DIY: $59

These two sources have quite a wide discrepancy, which goes to show how variable CAC is, and why it might not be the best idea to compare it to other businesses.

Why is Customer Acquisition Cost Important?

So is customer acquisition cost really that important?

While it might not be smart to look at CAC as a standalone metric, it’s still an important metric.

CAC is a key component of profitability. The less you spend on acquiring a customer, the more profit you make from each sale.

It’s obvious that you’d want to aim for a lower marketing spend in relation to sales. As well as making more profit, if you’re able to reduce acquisition costs, you could afford to price your products lower and undercut the competition.

But a low CAC on its own doesn’t mean your business is successful, or even profitable.

It’s important, but only relevant to other metrics, such as total sales, average order value and customer lifetime value.

Making Sense of Acquisition Cost (What is a Good CAC?)

The answer to “what is a good CAC” is a bit like the answer to “how long is a piece of string?”

A health and beauty company with a $100 CAC could be average, amazing, or awful, depending on other factors, such as:

Average order value (AOV)

If your AOV is lower than CAC, you’re losing money on each sale (even before you take into account cost of goods sold).

So if you have a CAC of $100 with an AOV of $95, that’s not good. But a $100 CAC with an AOV of $250 could be excellent.

The higher your prices, or the more products you sell in each order, the higher CAC you can sustain.

Sales volume

You could have a CAC of $10 and an AOV of $100, which would look great, unless you only made one sale per month.

A lot of sales generally won’t make up for your CAC being above your average order value plus cost of goods sold. But if your sales volume is low, it doesn’t matter much if you’ve got a super low CAC, until you can scale and maintain a similar ratio.

Customer lifetime value

Customer lifetime value (CLV, or LTV) is another metric that can make up for a high CAC.

Lifetime value is the average amount of money each customer spends at your store in total, including repeat purchases.

The more likely customers are to come back and shop multiple times, the more you can spend to acquire them.

That means you could have a successful business with a CAC of $100 and an AOV of $95, if customers typically come back 3, 4 or 5 times and spend the same amount each time.

Context

It’s also important to consider how your CAC makes sense as part of your overall growth strategy, the stage your business is in at the time, and other variable factors outside of the metrics above.

For example, you may have a high CAC, but it’s because you’re experimenting with a new marketing channel and spending a lot of money to test and optimize your targeting.

You might be trying to break into a new, competitive market, and have to overspend at first to get a foothold with your target audience.

Some marketing campaigns are expensive at first, but pay for themselves in the long-run by building lasting brand recognition.

LTV to CAC Ratio

In most cases, the best way to assess CAC is in relation to lifetime value.

You want to aim for a LTV to CAC ratio of around 3:1 – meaning you earn $3 from every $1 spent.

You can improve your LTV:CAC ratio by reducing CAC, increasing AOV, increasing retention, or a mixture of all of the above.

7 Ways to Reduce Your Customer Acquisition Cost

As long as you don’t blindly optimize for CAC, and consider other metrics such as AOV and LTV, reducing your CAC will generally be a good thing for your business – decreasing expenses and increasing profit margins.

With that in mind, here are a few actions you can take to reduce customer acquisition cost and maintain a healthy LTV:CAC ratio.

Optimize your conversion flow

Improving conversion rate will improve your CAC.

Imagine you spend $100 on ads, 10 people click through to your site, and one ends up buying.

Your CAC is $100 – $100 spent for one sale.

If your conversion rate improved and you converted two people into buyers, your CAC would now be $50.

There are likely areas you can improve on to boost conversion rate – not as dramatically as the example above, but a slight improvement in conversion rate can be a significant increase in profits.

Reduce abandoned carts

Abandoned carts are the low-hanging fruit for boosting revenue and reducing CAC.

You’ve already spent money to get these people to your website, and they’ve shown enough interest in your brand to add something to their cart.

Oftentimes they left their cart without buying because they simply forgot, or because of small objections you can easily overcome by reaching out to them.

It won’t take much more marketing spend to convince a percentage of these shoppers to come back and finish their purchase.

Automated abandoned cart emails and push notifications are an effective, very low-cost solution to capture abandoned carts and ultimately convert more of your marketing dollars into sales.

Narrow your target audience

Sometimes you’re casting too wide of a net in your marketing strategy.

There’s a temptation to try and sell your product to everyone. But this is usually not the most cost-effective way to run a marketing campaign, and most products have a more narrow definition of their ideal customer.

You may find better results, while maintaining volume, but focusing intently on a smaller segment of the market.

Do some research into your target audience, and consult your analytics to determine which customer segments have the highest conversion rates, highest LTV, and lowest CAC, and focus more of your marketing efforts towards these consumers.

Retarget non-buyers

Retargeting is generally one of the most cost-effective marketing tactics.

You might think that when someone bounces without making a purchase, they’re not interested. But you may have just caught them at a time when they weren’t ready to buy, or stoked their curiosity but not quite enough to get them over the line.

Experiment with retargeting campaigns for people who have shown some interest in your products, such as those who spent a decent amount of time on your site, and viewed multiple pages.

Invest in more affordable marketing channels

Some channels are more expensive than others.

Social media ads (e.g. Meta – Facebook and Instagram) to use one example are notoriously competitive and getting more expensive every year.

If you’re putting all your marketing efforts into expensive advertising channels, try more cost-effective channels, such as content marketing, SEO and influencer marketing.

Additionally, capture information from your site visitors that enable you to drive sales using low-cost marketing channels such as email, SMS and push notification.

Set up a referral program

Referrals are another extremely cost-effective way to acquire new customers.

Customer referrals are highly trusted, and come at a very low cost to you. Once you set up your referral program, it can essentially run on autopilot, and you can sit back and let your loyal customers drive sales for you.

Launch a mobile app

One more way to reduce CAC (as well as boosting conversion rate, AOV and LTV) is to launch a mobile app.

An app provides numerous benefits for your brand. It offers a better user experience for mobile shoppers, helping you boost conversion rate, which is typically lower for shoppers on mobile browsers.

App users spend more in each purchase and buy more often, leading to more revenue generated from each customer and the ability to maintain a higher CAC.

Apps also give you access to mobile push notifications, which allow you to reach out to people with promotions, abandoned cart notifications, up-sells, cross-sells and much more, essentially for free.

If you don’t already have an app, MobiLoud is the best way to do it.

MobiLoud converts your website into native mobile apps, for minimal cost, zero effort, zero rebuilding, and without sacrificing any of the features that make your website great.

The apps are fully synced with your website. Everything that works on your site will work in the apps too, and there’s little to no overhead or maintenance required.

To get an idea of what's possible, take a look at some of the great apps we’ve built for high-revenue eCommerce brands here.

Ready to boost LTV, AOV, reduce CAC, and more? Get a free demo of MobiLoud today.