You’re seeing ad costs go up and returns get harder to prove. Paid channels are getting more expensive and less reliable for steady growth. Referral customers usually convert faster and cost less to acquire, so a small referral test often pays off quickly.

At the same time, channels you own, like email, SMS, and organic search, typically cost less per contact and provide data that helps you reduce long-term acquisition costs.

In this blog, you’ll get a clear formula for calculating customer acquisition cost, learn which line items to include or exclude, see how to use cohort and blended CAC, and get short, practical strategies to lower CAC through referrals, loyalty, and owned channels.

Key Takeaways:

• Use one simple math step each period to see how much you spend for every new customer, and watch that number over time.
• Use a headline CAC for top-level checks and a cohort CAC to see which campaigns actually pay back.
• Lean into channels you own and test small referral or loyalty offers to get more repeat buys without big ad increases.
• Compare your spending to what a customer will likely buy over time; this comparison shows if your acquisition is sustainable.
• Run quick experiments, measure real revenue impact, and scale only the tactics that clearly move the needle.

What is Customer Acquisition Cost (CAC)?

Customer acquisition cost (CAC) refers to the average amount spent to acquire one new customer over a specified period. Use this standard formula:

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CAC = (Total marketing + sales expenses for a period) ÷ (Number of new customers acquired in that period).

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This provides a single number that you can track month to month or quarter to quarter to measure the cost of acquiring new customers for your business.

What Total Expenses Usually Include

• Paid media (ads + platform fees): Direct spend to reach and convert prospects.
• Creative & production for acquisition campaigns: Costs to produce ads that drive conversions.
• Agency fees and paid tools for acquisition: Expenses tied to running and managing campaigns.
• Salaries or allocated marketer time for acquisition activities: The portion of staff time spent on acquiring new customers, ensuring unit economics reflect true labor costs.
• Onboarding or activation costs (if required): Initial fulfillment or setup necessary to convert a new customer into an active one (only the portion tied to new customers).
• Sales commissions or direct incentives for new customers: Payments such as bounties or commissions linked to new account acquisition.

Prorated or shared costs should be included only when they can be reliably allocated to acquisition, and the allocation method should be documented.

What to Exclude 

Items that belong elsewhere in your financial picture, and why they’re excluded from CAC:

• Cost of goods sold (COGS) and fulfillment per order: these affect gross margin, not the cost of winning a customer.
• Ongoing support and retention costs (unless part of initial onboarding): these drive lifetime value, not first-customer acquisition.
• Fixed overhead and corporate expenses: keep these in general overhead so CAC focuses on acquisition efficiency.
• Refunds/returns as a routine operating outcome: track separately against revenue and margin, only adjust CAC if refunds are explicitly part of your new-customer processing cost.

Getting these items right changes the CAC number and affects how you set budgets and judge channel performance.

Why Including the Right Costs Matters

If you omit hidden or shared costs, CAC appears artificially low, leading to misguided decisions. Investors, partners, or internal teams compare CAC to the lifetime value of a customer (LTV or CLV — the total revenue you expect from one customer during their relationship). 

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A healthy LTV-to-CAC ratio indicates that a customer’s future revenue exceeds the cost to acquire them; many consider a ratio of about 3:1 to be a benchmark for profitable growth. Tracking full expenses enables you to set realistic budgets and focus on channels that genuinely generate profit, not just volume. 

Quick monthly example:

• Total marketing + sales spend this month: $10,000
• New customers acquired this month: 100
  
  

CAC = $10,000 ÷ 100 = $100

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You can substitute your month’s total spend and new customer count to calculate your own CAC number. Run this calculation for a few months, including the line items listed above, and you’ll have a consistent CAC to compare with customer value and guide your spending.

Important Measurement Choices (Cohort CAC vs Blended CAC)

Blended CAC (also referred to as “company-wide” CAC) divides all sales and marketing spend in a given period by the number of new customers acquired during that same period. It provides a top-level view that’s easy to report and compare across large periods. Use blended CAC when you need a single headline metric for overall efficiency.

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Cohort CAC calculates the CAC for a specific group (a “cohort”), such as customers who made their first purchase in January or customers from a particular campaign or channel. A cohort groups people based on when or how they were acquired, allowing you to track how acquisition cost and value change over time. 

This enables you to measure payback time (i.e., how many months it takes for a cohort’s revenue to cover its CAC) and to determine whether newer campaigns are becoming more or less efficient. 

Which to use and when

• Use blended CAC for high-level reporting and when you want a single, easy-to-compare number across periods. It’s useful for board updates or quick budget checks.
• Use cohort CAC to understand cause and effect by identifying which campaigns, channels, or months deliver customers who pay back the fastest or have higher LTV. 

Cohort CAC is the metric to run when you’re forecasting, testing creative changes, or deciding whether a new channel is worth scaling.

Short cohort example:

• January cohort spend: $6,000 
• January cohort new customers: 60  

Cohort CAC = $6,000 ÷ 60 = $100.

Then track how long it takes that cohort’s revenue to reach $100 to calculate the payback. 

Track both numbers when possible: blended CAC for the big picture and cohort CAC for the detail. Use the one that answers the question you actually need to solve.

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Knowing how to calculate and interpret CAC is useful, but the real value comes from applying strategies that bring the number down and improve returns.

Also Read: How to Boost Customer Retention with a Shopify Loyalty Program?

Practical Strategies to Reduce CAC and Boost ROI

If you want lower acquisition costs and stronger returns, the best path is to focus on practical, proven tactics. Here are strategies you can apply right away to reduce customer acquisition cost (CAC) and improve ROI:

1. Measure first: Track CAC by channel and by cohort (customers acquired the same way or during the same period). Cohort CAC reveals which campaigns last; blended CAC hides details.
2. Focus on owned channels: Owned channels are email, SMS, organic search, and your content. They cost less per touch than ads. Build a short welcome series, segment your lists, and add simple win-back flows. These steps reduce the amount you spend on acquiring new customers over time.
3. Put a referral program live: Referred customers usually cost less and convert better. Offer a small, double-sided reward (both referrer and friend). Make the code or link trackable and scale what works.
4. Raise CLV: Increasing repeat purchases makes any CAC more acceptable. Try subscriptions, bundles, post-purchase reorder prompts, and a basic loyalty layer that rewards repeat buys.
5. Tighten paid media: Reduce waste by narrowing targeting, frequently testing creatives, and directing traffic to high-converting landing pages. Run small holdout or A/B tests to measure true incremental return.
6. Use social proof: Add recent reviews and user-generated content (UGC) to product pages and ad creative to raise conversion. Better conversion lowers CAC fast.
7. Measure attribution and run experiments: Link spend to real revenue. If full attribution isn’t possible, use simple A/B or geo tests. Run many small tests and scale winners.

Pick one or two tactics, measure the change in CAC and CLV, and keep scaling what works. Small, steady wins add up.

While strategies help reduce costs, benchmarks provide context. They show how your CAC compares to others in your industry and whether your ratio to customer value is sustainable.

Also Read: Maximizing Growth with CLV: A Strategic Loyalty Approach

2025 CAC Benchmarks and What’s Considered ‘Good

CAC is influenced by product price, purchase frequency, and the method of customer acquisition (e.g., ads, organic channels, referral programs). Some categories buy on impulse and have low CAC but low repeat rate; others tolerate higher CAC because LTV is much larger. Use benchmarks to spot opportunity, not as a strict target.

How to Use These Ranges:

• Treat the table as starting points, not absolutes. Different customer segments and channels will fall within or outside these ranges. 
• If your CAC falls within the range, ask how it compares to your LTV, not just the industry average. The usual rule of thumb in 2025 guidance is to aim for an LTV: CAC ratio near 3:1 (three dollars back for every dollar spent), though acceptable ratios depend on your growth plan and margins. 

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Measure your CAC, break it into cohorts, and then compare each cohort’s CAC to its LTV. Use the gaps you find to decide whether to optimize acquisition, increase LTV, or both. The benchmarks above give context; your own LTV is the decision driver.

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Benchmarks provide a reference point, but tools like Nector enable you to make practical changes that lower your effective CAC and improve customer value in real time.

How Nector Helps Reduce Customer Acquisition Cost

Feeling pressure from rising customer acquisition costs? You’re not alone. Buying traffic is getting pricier, and winning customers once is not enough to make that spend profitable.

Nector helps by turning one-time buyers into repeat customers and advocates for lowering the effective customer acquisition cost over time. Its core tools match the parts of your funnel that move the biggest needle:

• Loyalty programs: Fully white-labeled, customizable point and VIP tier systems you can launch quickly to lift repeat purchase rates and average order value.
• Incentivized reviews & social proof: Request and display reviews (text, images, video) to boost conversion on product pages and in ads, which reduces paid media waste per new customer.
• Automated engagement & email triggers: Pre-built automation and reminder prompts to recover and reactivate customers without heavy manual work.
• Dashboard analytics + integrations: Real-time program reporting plus connections with Shopify, Klaviyo, Omnisend, Judge.me, and other tools so you can tie loyalty and referral performance back to revenue and CAC.

In practice, you can start small by launching a loyalty or referral test with a single customer group. Track the additional repeat sales and referral revenue, then compare these to your ad spend. If those numbers increase, your customer acquisition cost decreases because you’re paying once but earning more from each customer.

With the right methods and tools, lowering CAC becomes a continuous process.

Wrapping Up

Measure the true cost to acquire a customer by including all direct acquisition expenses and a fair share of shared costs, then use that figure to guide decisions. Use a headline (blended) CAC for broad reporting and cohort CAC to identify which campaigns deliver the quickest return. 

Conduct small, measurable tests that directly link spend to revenue, focusing on only the clear winners. Increase customer value by offering more repeat purchases, simple subscriptions or bundles, and basic post-purchase flows, making the same acquisition spend more profitable.

Nector helps lower effective CAC by increasing repeat purchases, referrals, and on-site reviews through points and VIP tiers, referral flows, automated engagement, and reporting. It integrates with Shopify and common marketing tools (Klaviyo, Omnisend, Judge.me) and offers a 7-day free trial on the Starter Plan so merchants can test the impact quickly.

Begin by conducting a small loyalty or referral test to gauge incremental repeat revenue and referral lift, then book a demo to see it in action.