What is Customer Acquisition Cost (CAC)?

Definition: Customer Acquisition Cost (CAC) is the total overall cost to acquire a customer, including the cost of producing, storing, and shipping the items that a customer purchases. This is one of the most important measures for online businesses because having a positive CAC is the only way for a business to succeed.

How businesses use CAC to monitor performance

Measures like Cost Per Acquisition are a useful way of calculating the success of marketing campaigns, but a company's costs are not limited to marketing existing products.

When average order value (AOV) falls below the total costs associated with acquiring customers, ecommerce merchants are not turning a profit. CAC helps businesses understand the larger scope of their marketing efforts to ensure that costs are kept in check and products are priced accordingly.

How to obtain a postiive Customer Acquisition Cost

CAC and pricing go hand-in-hand: without knowing how much it costs to increase your customer base and expand the brand, you can't know how to price products. Converseley

• **Warehousing:**Producing, shipping to the warehouse, and additional production and inventory costs.

• Fulfillment: shipping to customers

• Marketing: Paid ads, affiliate pay-outs, and any other marketing expenditures incurred between the awareness and purchase stages

• **Labor:**Marketing, support, and third-party contractors are involved throughout the fulfillment stage.

Accepting high CAC for brand awareness

While profits are clearly the ultimate goal, some online merchants find it well worth their while to forego short term profits for long-term gains. For example, many online stores attract new customers with special deals, limited-time offers, or "first month free" subscriptions. While this slims margins in the short term, the boost to customer lifetime value can return a supremely high ROI.