The average cost of winning one new paying customer. It usually includes all marketing and sales costs, not only ad spend.
Formula
CAC = (ad spend + other marketing and sales costs) ÷ number of new customers
Example
Meera spends ₹1,00,000 on ads and ₹20,000 on a freelance social media manager. Of her 200 online orders, 160 come from first-time buyers. Her CAC is ₹1,20,000 ÷ 160 = ₹750.
How you'll hear it
“Our CPA looks like ₹500, but once you count only new customers and the freelancer's fee, CAC is ₹750.”
What it helps you decide
How much you can spend to grow, set against what a customer is worth over time (LTV). It decides whether scaling makes or loses money.
Where people misread it
People use CPA as CAC. Repeat buyers make CPA look cheaper than the real cost of a new customer, and leaving out salaries, agency fees and tools makes CAC look cheaper still.
The story
Meera wants to know what it costs her to win a new customer online. The ad dashboard says ₹500 per purchase. That is CPA, and it is not the answer.
| Ad spend | ₹1,00,000 |
| All orders | 200 |
| Cost per order | ₹500 |
|---|
| Ad spend | ₹1,00,000 |
| Freelance social media manager | ₹20,000 |
| Total marketing cost | ₹1,20,000 |
| New customers (first-time buyers) | 160 |
| CAC | ₹750 |
|---|
Forty of the 200 orders were from people who had bought before. They did not need winning. Remove them and add the freelancer's fee, and the cost of a new customer is 50% higher than the dashboard suggests.
Is ₹750 too much? CAC alone cannot say. A first order of ₹2,000 leaves ₹1,400 after the clothes cost, so she recovers ₹750 on the first sale. If customers come back, each one is worth more. That is the job of LTV and the LTV:CAC ratio.
All figures are illustrative.
Work out your CAC
The example's numbers are filled in. Replace them with yours.
Compare CAC with what a customer is worth over time. See LTV:CAC ratio.
Don't confuse it with
Related terms
Want to use this at work? AI-led PPC Excellence is aFactor's 16-week program for paid ads.