CAC vs. CPA: Differences & Importance for E-Commerce Sellers
Updated May 4, 2023.
Customer acquisition cost (CAC) and cost per acquisition (CPA) are two complementary metrics with a similar important goal: getting conversions (sales) by promoting brand awareness.
CAC does this by measuring the cost of acquiring a paying customer, while CPA measures the cost of acquiring a non-paying customer, including customers that register for your email newsletter, register on your store, participate in a survey or trial, and more.
Customer Acquisition Cost (CAC)
Let's get right down to business. CAC calculates how much you have spent in your quest to get more customers. This metric is calculated over a specific period of time.
The insights that you can get from calculating CAC will help you in two ways:
- You'll know which customer acquisition channels to prioritize because you'll know which channels are performing the best.
- You'll be able to use your CAC calculations to optimize your sales and marketing budgets, thereby assisting with the marketing decision-making process.
How to Calculate CAC
In order to calculate the customer acquisition cost, the following CAC payback formula is needed:
the total cost (sales and marketing costs) of acquiring customers /
the total number of customers acquired over a time period
Typical Components
The typical costs included in calculating CAC in e-commerce will vary between companies and industries. The components would typically be as follows:
- Advertising costs
- Direct sales costs
- Production costs
- Cost of your marketing team (employee wages)
- Technical costs (software costs)
Why It's Important for E-Commerce
CAC helps to measure the value of bringing on new customers. This provides further insights because:
- It helps businesses understand the larger scope of their marketing efforts to keep expenses manageable.
- It ensures products are priced correctly.
Monitoring your CAC value will play an ongoing role in your e-commerce store's marketing and sales strategy as your business grows. Using the insights that you get from CAC will allow you to build a sustainable business that continues to show steady growth.
» Are you receiving a return on your marketing activities? Learn how to calculate and increase your marketing ROI
Know Exactly Where Your Business Stands
Boost your conversions with Profit Analysis Dashboard by BeProfit. This app can help you pinpoint metrics and identify your best-selling products with ease.
- Get real-time reports on the cost of goods sold (COGS), shipping costs (shipping and handling), processing fees (payment processing), and more.
- Track and analyze all of your traffic from places like social media, online ads, email campaigns, affiliates, and influencers with the help of a UTM system.
- Monitor advanced revenue metrics like cost per order with a mix of automated matching and manual tagging.
Cost Per Acquisition (CPA)
CPA measures the total cost to acquire a single paying customer from a specific campaign or channel. CPA is critical for measuring the success of your marketing strategies.
The insights that you can get from calculating your CPA will help you in two ways:
- You can pinpoint how much it should cost to get one new customer. This will help you avoid spending more than you should on attracting other new customers.
- Once you have an accurate CPA, you can formulate accurate costing strategies to sustain the growth of your business and, in turn, the success of your business.
» Discover 5 expert ways to lower your CPA through ad spend
How to Calculate CPA
The following is the formula that must be used to determine the CPA:
total cost of a campaign (marketing and sales) /
total number of conversions (customers)
Typical Components
The typical costs included in calculating your CPA will also vary between companies and industries. The components would typically be as follows:
- Clearly defined target audiences
- The cost of your sales and marketing teams (employee wages)
- Advertising budget and creative costs (engaging content)
- Technical costs (software)
- Production and publishing costs
- Inventory upkeep
Why It's Important for E-Commerce
CPA helps your marketing team track their success and gives them the opportunity to show business leaders real results for the marketing campaigns they run.
By monitoring CPA on an ongoing basis, your marketing team will know when it's time to end a campaign and start working on something new and fresh.
Finally, CPA can be a reference point for future campaigns. It provides a realistic metric to aim for because it has already been achieved in the past.
» Are you reaching the right customers in the right way? Discover the difference between remarketing and retargeting
Similar, but Not Identical
It's important for you to know the difference between CAC and CPA since they are so similar in order to use them in the correct way. As an e-commerce seller, you need to know how much it costs you to attract paying and non-paying customers so you can use them in tandem to grow your customer base and sustain success.
Once you grasp the importance of CAC and CPA, you can start using the LTV/CAC ratio to drill down into the insights they provide even further. The more you drill down, the more valuable the insights. It isn't only about the bigger picture—it's about the finer details as well.
