Customer Acquisition Cost (CAC) Calculator
CAC is the total marketing cost to acquire one paying customer. It must be lower than your contribution per order, and ideally lower than one-third of LTV.
Verdict
Enter your numbers and click Calculate.
Customer Acquisition Cost: The Number That Determines Whether You Can Scale
Customer Acquisition Cost (CAC) is the total marketing and advertising spend required to win one new paying customer, averaged over all customers acquired in a given period. It is the price of growth. If your CAC is below your contribution per order, every new customer puts cash in your pocket today. If your CAC is above your contribution per order but below your LTV, every new customer costs you cash today but pays back over time. If your CAC is above your LTV, you are buying customers at a loss with no path to recovery — this is the death spiral of dropshipping.
The Formula
CAC = Total Ad Spend ÷ New Customers Acquired
LTV : CAC Ratio = LTV ÷ CAC
Payback Period = CAC ÷ (Contribution Per Order × Purchase Frequency)
Worked Example
You spend $1,500 on ads in a month and acquire 120 new customers. Your LTV is $60 and your contribution per order is $18. Your customers buy twice per year.
- CAC = 1,500 ÷ 120 = $12.50
- Profit per customer on first order = 18 − 12.50 = $5.50
- LTV : CAC ratio = 60 ÷ 12.50 = 4.8:1
- Payback period = 12.50 ÷ (18 × 2 / 12) = ~4.2 months
This is a healthy store. You are profitable on the first order, your LTV:CAC is well above the 3:1 healthy threshold, and your payback period is short enough that you can scale without running out of cash.
LTV : CAC Ratio Benchmarks
| Ratio | Verdict | Action |
|---|---|---|
| Below 1:1 | Bleeding cash | Stop paid acquisition immediately. Fix offer, creative, or product. |
| 1:1 – 2:1 | Barely surviving | Improve creative, narrow targeting, raise price, or improve retention. |
| 2:1 – 3:1 | Break-even-ish | Acceptable but fragile. Optimize before scaling. |
| 3:1 – 5:1 | Healthy | Scale slowly. You have margin of safety. |
| 5:1+ | Excellent | Scale aggressively. You are under-investing in growth. |
The Two Ways to Lower CAC
1. Lower the cost of acquisition. Better creative (your ad's hook in the first 3 seconds), better offer (bundle, free shipping, guarantee), better targeting (lookalikes from your buyer list), and better landing page conversion rate all reduce the dollars required to win one customer.
2. Increase conversion rate at the same ad cost. If you double your landing page conversion rate from 1.5% to 3% at the same cost-per-click, your CAC halves. This is why store design, page speed, reviews, and product page copy matter as much as the ad itself.