Customer acquisition is more expensive than ever due to rising ad costs, increased competition, and changing consumer behavior. To stay profitable, ecommerce brands need to strike the right balance—spending efficiently while maximizing returns and capturing potential customers. 

In this guide, we’ll help you understand what factors increase your acquisition spend and the best ways to lower customer acquisition costs (CAC) for your ecommerce brand while capturing new revenue and driving sustainable growth. 

What is customer acquisition cost?

Customer acquisition cost, also known as CAC, is what it costs your business to acquire a new customer. This includes all advertising, sales, and marketing costs over a specific period, divided by the number of new customers gained. This metric is crucial to understanding your company’s profitability in the long run.

How to calculate customer acquisition cost

To figure out your customer acquisition cost, the formula is pretty simple:

Let’s understand customer acquisition costs for some of the most popular acquisition channels:

1. Facebook ads

The formula is:

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Facebook ad spend during a particular period / Total new customers acquired in that period

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So, if you spend $5K in a month and acquire 625 customers, your CAC is $8.

How to lower CAC on Facebook:

• Improve ad targeting to reach high-intent users.
• Test creatives and target audience segments.
• Use retargeting ads to convert warm leads at a lower cost.

2. Google ads

The formula is:

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Google ad spend during a particular period / Total new customers acquired in that period

So, if you spend $10K in a month and acquire 150 customers, your CAC is $66.66.

How to lower CAC on Google:

• Prioritize high-converting keywords and optimize bids.
• Use negative keywords to filter out irrelevant traffic.
• Improve landing page user experience to boost conversion rates.

3. TikTok ads

The formula is:

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TikTok ad spend during a particular period / Total new customers acquired in that period

So, if you spend $3K in a month and acquire 500 customers, your CAC is $6.

How to lower CAC on TikTok:

• Use viral, native-style content to engage users.
• Experiment with influencer collaborations for organic reach.
• Optimize ad creatives based on performance data.

For example, Doe Lashes, an ecommerce brand, reduced CAC by 60% compared to Facebook by leveraging TikTok ads.

Source

What is a good customer acquisition cost?

To determine if your customer acquisition cost is good, compare it to the customer lifetime value (the total value a customer brings over time).

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A strong benchmark is aiming for a customer lifetime value (LTV) to CAC ratio of 3:1 or higher. So, the customer you acquire should spend 3x more than what you spent on acquiring them.

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A higher ratio indicates a profitable customer acquisition strategy. 

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When it comes down to costs, average CAC is different based on industry, business model, and factors like product type, acquisition channel, sales cycle length, etc. Here’s what an average CAC looks like for different industries:

Source: First Page Sage

Factors affecting your customer acquisition cost

Customer acquisition cost isn’t just about how much you spend on ads. Several factors—both direct and indirect—play a role in determining how much you pay to acquire each new customer. Here’s what influences CAC and how to manage these costs effectively.

Ad spend

Your advertising budget is the most direct and, consequently, the biggest contributor to your acquisition cost.  Better allocation can lower your acquisition costs. 

Some factors that directly influence how much you spend on acquiring customers via ads are:

• Market competition: If many businesses are bidding for the same audience, ad pricing rises. In highly competitive industries, refine your targeting and focus on niche audiences to reduce marketing costs.
• Audience definition: A broad audience may bring more clicks but fewer conversions, leading to wasted spend. Defining a specific audience helps improve conversion rates while keeping CAC in check.
• Ad channel used: Some platforms tend to have higher CPCs (cost-per-click) than others. Choosing the right channel based on your product and audience is key.
• Seasonal demand and timing: During peak shopping seasons (like Black Friday), ad costs spike due to increased competition. Planning early and strategically, as well as running campaigns during off-peak times, can help mitigate total costs.
• Ad quality: Poorly designed ads drive lower engagement, leading to higher costs. High-quality visuals, compelling copy, and strong calls to action improve ad performance and lower cost per click (CPC).

Conversion optimization factors

Your acquisition method may be impactful enough to drive clicks, but you'll be draining your marketing budget if you haven’t optimized other touchpoints for conversions. 

Many factors impact how website visitors convert into customers, including:

• On-site experience: A seamless customer journey directly impacts conversions. Slow load times, complicated checkouts, or generic product pages can drive visitors away. 
• Trust: When visitors land on your site, they are looking to confirm that your brand is proven to deliver on the results it promises. Use testimonials, reviews, and customer photos for social proof. 
• Sales cycle length: The longer it takes for a customer to make a purchase decision, the more you spend on remarketing and nurturing. Offering discounts, social proof, and limited-time deals can help shorten this cycle. If you sell high-ticket products, consider capturing their email address and offering a discount to retarget interested shoppers through a more cost-effective channel. 

An unrelated factor that can help lower acquisition costs is your retention strategy. With more repeat customers, you can reduce your efforts to acquire new customers, lowering long-term CAC. Subscription models, loyalty programs, and positive post-purchase customer experiences can boost retention.

Operational costs

Your costs to acquire new customers don’t just include marketing expenses—operational costs also contribute indirectly. These costs may seem indirect, but they still affect your overall CAC. For example:

• Employee labor and time: Managing content marketing campaigns, handling customer inquiries, and fulfilling orders all take time and effort from your team. Streamlining operations through better systems, response templates, and automation can reduce time and effort. 
• Software costs: Running paid ads, managing customer data, and optimizing campaigns require specific tools that you need to pay to use—often a recurring expense. Factor this cost into your overall CAC strategy to make sure they don’t outweigh your returns.

Strategies to reduce your customer acquisition cost

Keeping your customer acquisition cost (CAC) in check is essential, but you don’t miss out on new customers in the process. 

Here are 8 proven strategies that keep your marketing costs in check and drive profitability.

1. Analyze past ad campaigns to identify high-performing tactics

Paid ads are a powerful channel to acquire new customers but many brands fail to maximize their potential. Instead of spreading your budget across multiple experiments, double down on what already works. Look at past ad campaigns and identify:

• Top-performing creatives: Which ad visuals and copy led to the most conversions? Use this insight to refine future ads.
• Best audience segments: Review your targeting data to see which customer base responds best. Retarget them or use lookalike audiences with personalized messaging.
• Effective ad placements: Some channels drive cheaper conversions than others. If a platform consistently delivers with a lower spend, prioritize those.
• Winning ad formats: Compare different formats like carousel ads, static images, and videos. Create future paid campaigns using formats that bring higher engagement and conversion rates.

2. Get specific with retargeting

Not every visitor will buy the first time they land on your site. Set up retargeting campaigns so that you don’t miss out on shoppers who have shown real interest in your products.

• Segment based on behavior: A visitor who viewed a product page is different from someone who reached checkout. Customize your ads for different customer segments accordingly.
• Remind cart abandoners: Set up timely abandoned cart email campaigns and retargeting ads with discounts.
• Use dynamic product ads: Show people the exact items they browsed to nudge their interest and bring them back. 
• Time it right: Retarget cart abandoners within a few hours (and a few days) for casual browsers to stay on top of their mind without being intrusive.

Instead of only chasing new customers, re-engage those already familiar with your brand—it’s faster and more cost-effective.

3. Improve your conversion funnel with on-site optimizations

If people are landing on your website but not converting, the issue isn’t traffic—it’s your site experience. Fixing bottlenecks in your conversion funnel directly lowers CAC.

Here’s what to focus on:

• Optimize product pages: High-quality images, clear descriptions, and customer reviews provide clarity, build trust, and reduce hesitation.
• Set up subscriptions to capture recurring revenue: If you sell products that need to be repurchased frequently, allow shoppers to subscribe to easily restock without needing to get on your website to shop every time they run out. 
• Simplify checkout: Reduce form fields, offer guest checkout, and accept multiple payment options to allow shoppers to place orders easily.
• Make it mobile-friendly: Many people use their mobile to shop, but slow-loading or clunky designs cause drop-offs. Test your site across devices to ensure easy and fast navigation. 
• Improve site speed: A few extra seconds of loading time can drive visitors away. Compress images, use efficient hosting (like Shopify!), and minimize unnecessary scripts.
• Test the ad-to-checkout flow: Click on your ads and go through the buying process on your site yourself. Identify and fix any touchpoints that are complex or could cause users to drop off. 
• Tap into your data: Conversion funnel analytics and heatmaps help you understand how customers navigate through your store. Identify friction points, drop-off areas, usability issues, and opportunities to improve the shopping experience.

A smoother buying experience means fewer wasted ad dollars and higher conversions.

4. Build an affiliate program leveraging influencers and creators

Affiliate marketing allows you to partner with relevant influencers and creators who promote your products to their audience, driving new sales from them in exchange for commission-based rewards. 

Unlike traditional advertising where costs are tied to pay-per-click (PPC), affiliate marketing is based on sales generated, making your costs more predictable and giving you a better return on investment (ROI). 

Set up your affiliate program using Social Snowball. The tool gives you:

• Easily capture and onboard new affiliates through your affiliate landing page
• Set up different program tiers for influencer and customer affiliates.
• Send free products to influencers for word-of-mouth marketing.
• Manage payouts and performance in one dashboard.

Follow this step-by-step guide on launching an affiliate program to set up and launch an additional revenue-generating channel for your ecommerce business.

5. Encourage referrals from existing customers

Customer referrals allow you to turn your existing customers into brand advocates, helping you acquire new customers at a lower cost. For instance, you can offer customers a $10 store credit or cashback for every new customer they bring in.

Similar to affiliate marketing with influencers and creators, referral programs are proven to drive great results. Customers acquired through referrals have a 25% higher lifetime value than those from paid channels.

Read how you can set up a customer referral program for your ecommerce store.

Outway, a performance socks brand has a strong customer referral program. Using Social Snowball, they onboarded thousands of customers and offered incentives for successful referrals. By prioritizing referrals, they generated revenue at a 5x ROI while reducing their ad costs.

6.  Use organic channels to build a community

Organic channels provide authentic and long-term growth for your brand without needing a large budget, reducing your dependency on traditional ads. Let’s take a closer look at two types of organic channels: social media and search engines.

Organic social

Growing your social presence naturally can help you reach a larger number of new customers with better trust. Here are some tactics to leverage social media for acquisition: 

• Share valuable content that resonates with your audience.
• Engage consistently with comments, replies, and community interactions.
• Encourage user-generated content (UGC) by asking customers to share their experiences.
  Amplify customer voices on your social media account and repurpose UGC for social proof. 
• Collaborate with influencers and brand advocates to extend your reach.

For example, Sweet Dreams, a sleep supplement brand, launched a TikTok creator program where they partnered with influencers and customers. This helped them generate 25% of their revenue at 40% lower CAC than paid ads.

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Organic search

Optimizing for search engines lets you increase your visibility and draw in customers actively looking for products like yours. To rank higher in search results:

• Research and use relevant keywords in website content, product descriptions, blogs, and meta tags.
• Create high-quality, informative content that answers customer questions.
• Optimize site speed and mobile usability.

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For example, if you search for a t-shirt, in the beginning, you’ll see all the sponsored ads pop up (marked with red), but below that are the organic results that shoppers often engage with more.

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Unlike paid ads, SEO takes time but leads to sustainable, long-term traffic without recurring marketing costs.

7. A/B test to identify what strategies work

Managing an online store comes with constant changes like evolving consumer preferences, market shifts, and new product releases. As a result, maximizing your customer acquisition budget becomes tricky.

A crucial aspect of lowering customer acquisition costs is testing what drives conversions. A/B testing helps you compare different strategies—whether it’s website design, discount offers, or ad strategy—to understand what resonates best with your audience.

By running these experiments, you can:

• Identify what tactics drive more purchases.
• Optimize website experience for higher conversions.
• Fine-tune marketing campaigns based on real data.

For example, if you’re deciding between a customer affiliate program and an influencer affiliate program, testing both can reveal which brings in more engaged customers at a lower cost. 

With tools like Social Snowball, you can launch and track both campaigns from a single dashboard, making it easy to compare results.

8. Email marketing to retarget past customers

A great way to reduce customer acquisition costs is by prioritizing past customers using email marketing. By sending personalized emails, promotions, or product recommendations to previous buyers, you can encourage repeat purchases and capitalize on existing customer relationships.

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Since retaining customers is 5-25% cheaper than acquiring new ones, you’ll be capturing more sales at a lower cost.

Here are a few ways to retarget past customers:

• Segment past customers based on their purchasing behavior and upsell products that they are likely to be interested in. 
• Identify past customers who have browsed the store recently but haven’t bought yet, sending them a discount to nudge a sale from them.
• Build a relationship with past customers by sending newsletters and sharing helpful tips with them. This makes them feel more connected to your brand, making them more likely to come back and shop.
• If you sell products that need recurring purchases, send an email to shoppers who haven’t repurchased in the last 60-90 days (depending on how fast your product runs out) and remind them to stock up.
• Send a discount to at-risk customers—those who haven’t shopped from you in longer than 120 days. Use this as an opportunity to rekindle the relationship, sharing valuable information, brand updates, new products, etc.

💡Bonus tip: Focus on improving customer retention

Besides leveraging email marketing to tap into past customers, it’s crucial to prioritize retaining customers in other ways. Your existing customers already love your products and have chosen to use your products (sometimes purchasing more than once). By prioritizing them, you can increase repeat purchases and even turn them into brand advocates.

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So, how can you improve customer retention? Here are some ideas to start with:

• Collect feedback through surveys and reviews to understand customer needs. Communicate with them about the ways you’re improving your brand’s experience to show that you prioritize them.
• Start a loyalty program with points, additional perks, and exclusive discounts for loyal customers, giving them a better deal.
• Set up personalized recommendations on-site, showing products that past customers were interested in or are likely to be based on their purchases.
• Tailor your customer service for loyal customers, ensuring that your support team gives them priority help to deliver a great experience every time they interact with you.
• Offer educational resources like guides and tutorials (if relevant) to provide more value.
• Monitor your churn rate to identify reasons why customers stop repurchasing from your brand and prioritize fixing it.

Shopify’s blog on retention strategies can help you increase your repeat customer rate.

Increase your ROI with smarter customer acquisition strategies

With the right marketing strategies and optimization tactics, you can effectively lower your customer acquisition costs. 

If you're thinking of setting up affiliate marketing or referral programs for your ecommerce business, Social Snowball makes it easy to launch and scale your program. The affiliate marketing tool allows Shopify stores to manage their entire affiliate marketing— a custom landing page about your affiliate program, simplified onboarding, easy payouts, affiliate content management, timely communication, and more!

Frequently asked questions

What metrics should I track to monitor and reduce CAC?

To monitor and reduce Customer Acquisition Cost (CAC), track the following metrics:

• Conversion rates
• Customer lifetime value (CLTV)
• Churn rate
• Cost per lead
• Cost per acquisition (CPA) across different channels
• Click-through rates (CTR)
• LTV to CAC ratio

Based on these, you can identify high-cost channels and prioritize channels, strategies, and ad creatives that bring in new customers at lower costs. 

Strategies like improving conversion rates by optimizing customer touchpoints, prioritizing high-performing marketing channels, and increasing customer retention can also help.

What is the cheapest customer acquisition?

One of the cheapest customer acquisition methods is referral marketing, where existing customers bring in new ones through word-of-mouth. Since you only pay out (through discounts, store credits, or cashback) for every new customer you acquire, it significantly reduces costs compared to paid ads. 

Read about customer referrals and how you can set them up for your ecommerce business.

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