Last updated: July 1, 2024
Customer Acquisition Cost (CAC) measures how much a company spends to acquire a single new customer, making it one of the most important metrics to track for ecommerce companies. The formula for calculating CAC is shown below:
For example, if a company spends $5000 on a PPC campaign that results in 50 sales, then the company spent approximately $100 to bring each of those customers in. For eCommerce companies, who often operate on narrow margins and limited staff, having a firm grasp on their CACs compared to industry benchmarks is necessary to contextualize marketing spend. The table below provides CAC benchmarks for eCommerce companies across 13 industries, based on proprietary data drawn from 80+ clients between 2017 and 2023.
Average CAC for eCommerce Companies by Industry
| Industry | Average CAC |
| 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 |
Understanding the CAC-to-LTV Ratio
CAC is most useful when combined with a second metric: customer lifetime value (LTV). Comparing CAC and LTV produces the CAC-to-LTV ratio, with eCommerce companies typically aiming for a CAC-to-LTV ratio of approximately 3:1. There are several factors to consider when calculating this ratio, however:
- eCommerce retailers experience the same issue with seasonality that brick and mortar stores do, and are likely to experience relative highs and lows in sales depending on the time of year. The most useful time scale on which to calculate CAC is annual as it accounts for these fluctuations.
- Companies with a higher degree of competition often aim for a lower ratio in favor of increased overall sales, trading short-term profitability for increased brand visibility and marketing share.
An annual CAC ratio that is significantly higher than 3:1 often indicates that a company can afford to spend more to bolster their long-term market share. Likewise, a ratio that is significantly below 3:1 that is not part of a long-term company strategy, suggests that marketing efforts are failing to effectively generate new customers and is a much more common scenario than a CAC that is too high.
Customer Acquisition Strategies to Lower eCommerce CACs
The most effective way to increase your CAC-to-LTV ratio is to lower your CACs by investing in high return marketing channels. Many ecommerce companies rely heavily on paid channels such as PPC or advertising on their sales platform, but doing so means that they must pay for each sale. Over time, this scaling cost, when combined with PPC inflation, drives up marketing costs and lowers profit margins.
The best way to lower CACs is by investing in organic marketing channels such as SEO, organic social media, and email marketing. The highest-ROI of these is SEO, which also provides a useful way for ecommerce companies to structure their other organic marketing efforts. Because SEO by its nature requires consistently publishing high-quality content, it creates a body of work that can be repurposed for other campaigns such as email and social media. For example, one blog article comparing a variety of products can be turned into an easily shareable infographic, and be condensed into an email to create new touchpoints for minimal added cost. This increases the reach of your marketing as a whole, bringing in more customers and driving down the cost of acquiring each.
Another way to lower your CACs is to optimize your customer acquisition funnel, increasing your conversion rates at each stage. This funnel, represented below, conceptualizes the steps a visitor takes before making a sale:
While ecommerce companies have much shorter sales cycles than other types of businesses, customers still go through multiple interest stages and touchpoints before committing to a purchase. Maximizing the number of visitors who transition into email or social media subscribers, and from subscribers into closed sales will significantly increase how many sales each marketing channel generates, lowering your CACs further.
Getting Help Lowering eCommerce CACs
Lowering your CACs is simple in theory, but fully implementing the above practices for a real-world ecommerce business is more challenging. Low CAC marketing channels require significant skill and resource investment, and require more lead time, making early mistakes costly.
As a result, many eCommerce companies work with an experienced marketing firm who is able to handle every aspect of a customer acquisition campaign. Our agency specializes in organic marketing for ecommerce companies, using a combination of SEO and thought leadership to reduce our clients’ CACs. Contact us if you’d like to learn more about our services.
