CAC is an abbreviation for customer acquisition cost. This helps you understand how much it costs to acquire 1 new customer. Simple? You’d think so. Oftentimes I’m working with a brand and we’re both using the term CAC, but they are defining it as getting a customer and I’m defining it as getting a new customer. Who’s right? In this article I’ll do my best to answer that.
CAC isn’t the same as how much it costs to get someone to order.
This is the most common mistake I see made is when an e-commerce brand uses “cost per order” and “cost per acquisition” interchangeably.
If Joe Schmo buys a $100 product that cost you $50 to make & ship from your store and you spent $50 to acquire him through paid ads you just broke even. Now imagine you have to spend another $50 to get him to buy again using paid ads. Does that make sense that you spent money twice to get him to buy? Yet, this is what many e-commerce brands do when they treat “cost per order” as if it’s “cost per acquisition.”
The reason it’s so important that we clearly define the cost to acquire a customer is because it is the main input when it comes to figuring out profitability of an e-commerce business.
The correct way to calculate CAC is “New customers / Total Marketing Spend = CAC”
Read on to learn how to find how many “New Customers” your company acquired in a given period. I’ve seen this be a difficult metrics for e-commerce business owners to locate in their business. Once I show you, you’ll wonder why you never took the time to locate it sooner. Let’s go!
How to find how much it costs to acquire a new customer using Shopify.
I’m going to assume you’re using Shopify to run your e-commerce brand. If you aren’t. I doubt you’re taking this seriously enough to even care about this metric and be this deep into this article.
Knowing how to find this within Shopify is important because every marketing channel from Google Ads, Klaviyo and Facebook Ads will claim it’s driving more conversions than it actually is. Not to mention, they all operate off of different attribution windows to start with.
Here’s how to find your new customer CAC in 3 steps. 1. Go to the reports section in Shopify. 2. Look at “First Time vs. Returning” report. 3. Using a given time period (i.e. This month to date) you can divide all marketing spend by new customers acquired.
Take 5 minutes to find your CAC for this month to date using spend data from your marketing channels and new customer data from Shopify.
Want a more profitable e-commerce business? Do this.
While most e-commerce entrepreneurs want to “scale” their e-commerce business. Profitable scale is what they’re really after.
If you end up breaking even after years of your life and hard work have been poured into an e-commerce business is that a win? We all have different definitions of success, but in my opinion growing only top line revenue with no profit isn’t a business win.
This is why paying very close attention to your new customer CAC is vital to e-commerce success.
Now that you know defining and tracking your CAC accurately is one of the best ways to scale your e-commerce business profitably. Make sure to do it often. I recommend daily so you can course correct if things are off even for a few days.
Setup your daily CAC tracker and start profitably scaling your commerce business from this day forward.
Hope this was useful, Joe Chavez
P.S. When you’re ready, here are 3 ways I can help you.
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