What Is Customer Acquisition Cost (CPA / CAC)? Calculation and How to Read It
When evaluating the results of advertising and marketing, the concept of customer acquisition cost is indispensable. This article clearly organizes what customer acquisition cost (CPA and CAC) is, and explains the difference between CPA and CAC, how to calculate them, and how to read the numbers, in a way that is easy for beginners to understand.
What is customer acquisition cost (CPA and CAC)?
Customer acquisition cost is a metric that refers to the cost of acquiring one customer (or one result). It expresses how efficiently you acquired customers relative to the money spent, and it forms the basis for judging the profitability of advertising and measures.
The difference between CPA and CAC
- CPA (Cost Per Acquisition / Action): mainly refers to the cost per result (such as a purchase or registration) via advertising. It is used when looking at efficiency at the ad or campaign level.
- CAC (Customer Acquisition Cost): refers to the total cost of acquiring one customer, including not only ad spend but also labor and tool costs. It is used when looking at the profitability of the business as a whole.
The two are often confused, but it is easier to distinguish them by thinking of CPA as the efficiency of advertising and CAC as the acquisition cost as a business.
How to calculate customer acquisition cost
Customer acquisition cost is basically obtained as cost incurred divided by the number of acquisitions.
The CPA formula
CPA is calculated as ad spend divided by the number of conversions (such as purchases or registrations). For example, if the ad spend is 300,000 yen and there were 150 registrations, the CPA is 2,000 yen.
The CAC formula
CAC is calculated as the total cost of acquisition (ad spend plus labor and tool costs, etc.) divided by the number of new customers. For example, if the total cost of marketing and sales is 5,000,000 yen and there are 250 new customers, the CAC is 20,000 yen. Because it includes costs beyond ad spend, it is generally higher than CPA.
How to read customer acquisition cost
You cannot judge whether customer acquisition cost is good or bad from the number alone. It is important to view it from the following perspectives.
- Compare it with LTV: if the value a customer brings over their lifetime (LTV) exceeds the acquisition cost, you can judge that the acquisition is profitable. The LTV / CAC ratio serves as a guide.
- View it by channel and measure: rather than only the overall average, viewing it by ad medium and campaign lets you distinguish the most effective measures.
- Track the trend: by viewing changes over time, you can check whether acquisition efficiency is worsening or whether measures are producing results.
Points for improving customer acquisition cost
To lower customer acquisition cost and improve profitability, the following points are effective.
- Narrow the target: concentrate advertising on segments likely to lead to results, and reduce wasteful spending.
- Raise the conversion rate: improve landing pages and input forms to increase the number of acquisitions from the same traffic.
- Leverage referrals and word of mouth: nurture acquisition routes other than advertising, such as referrals from existing customers, to lower the average acquisition cost.
- Raise retention: beyond acquisition, raise retention to grow LTV, creating a business structure that justifies the acquisition cost.
Summary
Customer acquisition cost (CPA and CAC) is a metric that refers to the cost of acquiring one customer or one result. CPA expresses the efficiency of advertising, while CAC expresses the acquisition cost of the business as a whole including labor and other costs; both are obtained as cost incurred divided by the number of acquisitions. Rather than the number alone, viewing it together with a comparison against LTV, a breakdown by channel, and the trend is the key to correct judgment. Start by calculating your own acquisition cost and checking its balance against LTV.