Customer Acquisition Cost (CAC): What to Include and What to Leave Out
By Newtown Analytics · · 8 min read
For ecommerce, marketing & growth leaders
Customer acquisition cost (CAC) is the total sales and marketing cost of winning one new customer, and the hard part is not the division, it is deciding which costs belong in the numerator and which customers belong in the denominator. Include too little and CAC looks cheap, so you scale spending that loses money. Include too much and good channels look bad. This guide defines CAC, lists what to include and what to leave out, shows one hypothetical business measured at four levels of completeness, explains timing lags, and says which version to use for which decision. It is part of unit economics and budgeting and forecasting, and it is followed by how to calculate CAC and blended CAC vs. paid CAC.
The basic formula
CAC = Total acquisition cost in a period / New customers acquired in the periodBoth parts need care. The numerator is every cost you incur to bring in new customers. The denominator is new customers only: people buying or subscribing for the first time, not repeat buyers, renewals or reactivated accounts.
What to include
| Cost | Include? | Notes |
|---|---|---|
| Paid media (search, social, display, video) | Yes | The largest and most visible item |
| Agency and freelancer fees | Yes | Media management, creative, influencer agencies |
| Creative production | Yes | Photography, video, copy, landing pages built for acquisition |
| Marketing team salaries and benefits | Yes | The share of time spent on acquisition |
| Sales team salaries, commissions and bonuses | Yes | For sales-led businesses this is often the largest cost |
| Marketing and sales software | Yes | Ad tools, CRM, analytics, email platform for prospects |
| Affiliate and referral payouts | Yes | Commissions and referral rewards for new customers |
| Events, sponsorships and trade shows | Yes | If their purpose is acquisition |
| Free samples and trials for prospects | Yes | Include product cost and shipping |
| First-order discounts | Often | Include if you want the true cost of buying the customer. Report it separately |
| Onboarding cost for new customers | Sometimes | Include if it is a condition of becoming a customer. In subscription models it is often treated as part of cost to serve |
What to leave out
| Cost | Why |
|---|---|
| Retention marketing to existing customers | It belongs in cost to retain, not cost to acquire |
| Customer support and success for existing accounts | Cost of serving, in gross margin |
| Product cost of the first order | Already in contribution margin |
| Upsell and cross-sell spend on current customers | Part of expansion economics |
| Brand spend with no acquisition purpose | A judgment call. If you include some, say so |
| Overhead with no link to acquisition | Distorts the figure and invites arguments |
The rule is consistency. Write down the definition, apply it every period, and change it only on purpose, with the history restated.
One business, four levels of CAC
A hypothetical ecommerce brand in a month in which it won 1,500 new customers (illustrative figures).
| Cost item | Amount |
|---|---|
| Paid media | $120,000 |
| Creative production | $15,000 |
| Agency fees | $10,000 |
| Marketing salaries (acquisition share) | $30,000 |
| Marketing tools | $5,000 |
| First-order discounts (1,500 × $8) | $12,000 |
| Level | Costs counted | Total | CAC |
|---|---|---|---|
| 1. Media only | Paid media | $120,000 | $80.00 |
| 2. Plus production and agency | Level 1 + creative + agency | $145,000 | $96.67 |
| 3. Fully loaded | Level 2 + salaries + tools | $180,000 | $120.00 |
| 4. Fully loaded with incentives | Level 3 + first-order discounts | $192,000 | $128.00 |
Check: 120,000 + 15,000 + 10,000 = 145,000; plus 30,000 + 5,000 = 180,000; plus 12,000 = 192,000; 192,000 / 1,500 = 128.
The same month produces a CAC of $80 or $128, a 60 percent difference, depending on definition. A marketer who reports level 1 and a finance leader who expects level 4 will each be correct and will argue for an hour. Agree on a definition, label each report, and show at least two levels: media-only CAC for channel optimization, and fully loaded CAC for profitability and payback.
Timing: spend and customers rarely line up
Marketing spend in one period often produces customers in the next. A new campaign, a long consideration cycle or a free trial all create a lag. If you divide this month's spend by this month's customers, the figure is distorted in a growth or launch period.
Example: a launch month has $90,000 of spend and 300 new customers, an apparent CAC of $300. The next month has $60,000 of spend and 900 new customers (including 400 who responded to launch activity), an apparent CAC of $66.67. Neither number is right. Combine the two months: 150,000 / 1,200 = $125. For businesses with a lag, use a rolling three-month calculation, or match spend to customers with a lag equal to the typical time from first touch to purchase. For B2B companies with sales cycles of several months, compare spend with the customers it produced a cycle later.
Sales-led businesses
For B2B, CAC includes the whole go-to-market engine. A hypothetical quarter: marketing programs $90,000, marketing team $60,000, sales development team $120,000, account executives including commissions $210,000, tools and travel $30,000. Total = $510,000. With 17 new customers, CAC = 510,000 / 17 = $30,000. A common mistake here is to leave out the sales team and report only program spend. If programs alone ($90,000) were used, CAC would look like $5,294, a sixth of the real figure.
Choosing the CAC for the decision
| Decision | CAC to use |
|---|---|
| Channel optimization and creative tests | Media-only or channel CAC, with attribution caveats |
| Budget scaling | Marginal CAC of the next dollar. See blended CAC vs. paid CAC |
| Profitability and payback | Fully loaded CAC. See CAC payback period |
| Investor and board reporting | Fully loaded, with a clear definition |
| Comparing segments | Fully loaded CAC by segment, with shared costs allocated on a stated basis |
| Setting a maximum bid or budget | The maximum affordable CAC from lifetime value. See LTV to CAC ratio |
Allocating shared costs
Some costs support several segments: a brand team, a marketing analytics tool, a head of growth. Allocate on a simple, stable basis, such as share of new customers or share of acquisition spend, and document it. Do not spend days on perfect allocation. The purpose is to avoid ignoring the cost, not to remove all judgment.
Attribution problems
CAC by channel depends on attribution, and attribution is imperfect. Ad platforms tend to claim credit for customers who would have bought anyway. Customers often see several channels before buying. Three practical safeguards:
- Compare platform-reported customers with actual new customers in your orders or billing system.
- Run holdout or geographic tests where possible to estimate incremental customers.
- Track total new customers against total spend as a check on channel-level claims.
CAC and the operating plan
CAC assumes the company can fulfil the demand it creates. If a campaign drives orders for products that are out of stock, the spend still counts but the customers do not arrive, and CAC rises. Aligning marketing calendars with inventory and demand plans protects acquisition efficiency. For consumer product companies, see demand planning and inventory optimization.
Common mistakes
- Leaving out salaries, tools and agencies.
- Counting returning customers as new.
- Using one-month windows during launches or seasonal peaks.
- Mixing definitions between reports.
- Using platform attribution as if it were audited.
- Reporting CAC without contribution per customer, so no one knows whether it is good.
- Treating the average as the marginal cost of growth.
Running CAC as a monthly process
CAC works best as a routine, not a one-off project. A simple monthly process has five steps. First, pull media spend from the ad platforms and reconcile it to the general ledger, because platform dashboards and invoices rarely agree to the cent. Second, add the other acquisition costs from accounts payable and payroll. Third, count new customers from the orders or billing system, using a first-order flag rather than a marketing tool, so that the count does not depend on tracking. Fourth, calculate CAC at the levels you have agreed, with the history restated whenever the definition changes. Fifth, write two or three sentences of commentary on what moved and why, so the number is never presented without an explanation.
The salary allocation is the part people skip. Suppose a marketing manager costs $8,000 a month in salary and benefits and spends about three quarters of their time on acquisition campaigns. The acquisition cost is 8,000 × 0.75 = $6,000. Asking each team member for a rough percentage twice a year is usually enough. The aim is a reasonable, consistent number, not a time sheet.
Discounts, free shipping and other incentives
Offers made to win a customer are part of what the customer cost. A 15 percent first-order discount on a $60 order costs $9, and free shipping on a first order costs whatever the carrier charges. Some teams treat these as price reductions and keep them out of CAC, which is acceptable if the contribution calculation for the first order includes them. The error is to leave them out of both. Whichever treatment you choose, state it, and make sure the cost appears exactly once.
FAQs
What is customer acquisition cost?
The total sales and marketing cost of acquiring a new customer, calculated as acquisition spend divided by the number of new customers in a period.
What should be included in CAC?
Paid media, agency and production costs, the acquisition share of marketing and sales salaries, commissions, tools and incentives to new customers. Exclude retention and cost to serve.
Is CAC the same as cost per acquisition (CPA)?
Not always. CPA is often a media metric per conversion in an ad platform, which may include repeat purchases. CAC is a fully defined cost per new customer.
How often should CAC be calculated?
Monthly, with a rolling three-month view to smooth timing lags, and by channel and segment.
What is a good CAC?
One that is comfortably below the contribution the customer will generate, with payback within a period your cash position can support.
Keep reading
This article is for general information. It is not accounting, tax, legal or investment advice, and examples use illustrative numbers rather than client data. Confirm decisions that carry financial or legal consequences with a qualified professional.