"What is CAC? (and how to think about it for a small store)"
Customer acquisition cost is what you spend to win one new buyer, and working it out for your store shows whether your ads and offers are paying their way.
You boost a reel, run a few ads, send some free samples and give a welcome discount. Orders come in. But how much did each new customer actually cost you? CAC is the name for that figure, and it is one of the most useful numbers a small store can know.
The definition
CAC stands for customer acquisition cost. It is the total money spent on winning new customers in a period, divided by the number of new customers you got in that period.
CAC = marketing spend divided by new customers.
Notice that it counts customers, not orders and not clicks.
A Rs 3,000 example
Say you spend Rs 3,000 on Instagram ads in a month, and 10 new customers buy from you for the first time. These numbers are illustrative.
CAC = 3,000 divided by 10 = Rs 300.
So each new customer cost you Rs 300 to win. The next question is the useful one. Does a new customer give you more than Rs 300 back?
Compare it with what a customer brings
If a first order leaves you Rs 379 of contribution after variable costs, then a Rs 300 CAC means you came out Rs 79 ahead on that first order. If the contribution is only Rs 250, you lost Rs 50 on that first order, and you would need a repeat order to be in profit. What is contribution margin shows how to find that number.
This is why CAC alone says little. Rs 300 is cheap for a product that leaves Rs 800 of contribution and expensive for one that leaves Rs 150. I will not quote what a good CAC is. There is no honest universal figure, because it depends on your margins and your repeat rate. Maximum CAC from first order contribution explains how to set a ceiling for your own store.
What to include in the spend
A common mistake is counting only the ad invoice. A fuller version includes other costs of winning customers.
- Ad spend.
- Fees paid to creators or agencies.
- Free samples and their shipping. See how to offer a small free sample with orders.
- Welcome discounts, because the money you gave away is a cost of winning that buyer. Welcome offer budget per 100 new customers can help.
- Affiliate or referral commissions. Affiliate commission vs ad cost per sale compares them.
Leave out your own time unless you want a fuller picture. Many solo sellers track both versions.
Count new customers only
If 10 buyers came from your ad but 4 of them had bought from you before, your new customer count is 6, and CAC is 3,000 divided by 6, or Rs 500. Check your order list for repeat names and phone numbers. Exporting orders makes this easier. Exporting customers and orders shows how.
What to do with the number
- If CAC is below the first-order contribution, your ads are paying for themselves on day one. You can consider spending a little more, slowly.
- If CAC is above first-order contribution, you are betting on repeat orders. Check whether that bet is realistic. CAC payback with repeat orders shows the arithmetic.
- If CAC is much higher than any reasonable contribution, pause and fix the offer, the page or the product before spending more.
A simple habit
At the end of each month, write three numbers. Total spend on winning customers, number of new customers, and CAC. Put them beside your average first-order contribution. Within a few months you will see a pattern, and your ad decisions will rest on your own data rather than on hunches or on someone else's screenshot.