Average Customer Acquisition Cost for Ecommerce 2023 – Average CAC for Ecommerce – Costs Explained
We researched every website on the internet with data on the average acquisition cost for ecommerce. Then we used math to determine the average customer acquisition (CAC) for ecommerce from all that data and calculate customer acquisition cost. We found that the average ecommerce customer acquisition cost is $49.06. We took the consumer data we found and calculated the customer acquisition cost for each ecommerce consumer industry. Here are the costs for customer acquisition for each ecommerce industry and how much your company must spend to get a new customer:
- The arts and Entertainment ecommerce products industry has a customer acquisition cost of $21.
- The business & industrial ecommerce products industry has a customer acquisition cost of $533.
- The clothing, shoes, and accessories ecommerce industry has a customer acquisition cost of $129.
- The food, beverages, and tobacco ecommerce products industry has a customer acquisition cost of $462.
- The health & beauty ecommerce industry has a customer acquisition cost of $127.
- The home and garden ecommerce industry have a customer acquisition cost of $129.
|Customer Acquisition Cost
|Arts and Entertainment
|Business & Industrial
|Clothing, Shoes, and Accessories
|Food, Beverages, and Tobacco
|Health & Beauty
|Home and Garden
According to Oberlo’s customer research, the order value for ecommerce is $106.89, with customer acquisition costs of $49.06; this leaves more or less 50% for profit without factoring in the cost of goods and services for the customers acquired. Now the question becomes how do I reduce the costs of good acquisition costs and sales for the average CAC and customer costs?
How to Reduce Your Average Customer Acquisition Cost and Increase Customer Lifetime Value For Your Customer Acquisition
There are two ways to reduce customer acquisition cost (CAC) for a higher customer value and potential customers:
- Increase your Customer Lifetime Value (CLV)
- Decrease your Costs for Marketing and Production.
You may need to become more familiar with customer lifetime value; it is the total amount of money a customer spends with a business over the lifetime of the relationship. For instance, our CBD clients have an customer lifetime value of $588 which means the customer spends $588 on CBD over the lifetime of their relationship with the CBD brand. If they have a customer acquisition cost of $49.06 and their order value is $129. They could spend up to $196 per customer in marketing costs to acquire a new customer. This is because the best customer acquisition cost is a 1 to 3 CAC (customer acquisition cost) ratio with customer lifetime value. Meaning you should spend at most 33% of your customer lifetime value to acquire a new customer this way, you can still make a healthy profit of a 1 to 3 CAC (customer acquisition cost) ratio.
If you wanted to reduce your acquiring cost to acquire a new customer as a CBD brand, you could increase your customer lifetime value from $588 to $1,764; then, you would reduce your acquiring cost by three times. If it costs you $49.06 to acquire a new customer and your CLV is $588, then you are spending 8.3% of your CLV on acquiring cost to acquire a new customer. However, suppose you increase your CLV from $588 to $1,764 while keeping your costs to acquire a new customer at $49.06. In that case, you only spend 2.7% of your CLV to acquire a new customer. This is about a three times reduction in acquiring cost and a three times increase in profit while keeping your total marketing spend the same. This is why CLV is largely known as the most important cost metric to evaluate marketing success.
Now the question becomes, how do you increase your CLV?
To answer this question, we must understand how to calculate CLV in the first place. Your CLV is your order value multiplied by your purchasing frequency to determine your CLV. For instance, in the CBD industry, the order value is $129, and the customer makes a purchase 4.55 times over the lifetime of a relationship with a CBD business. To calculate the CLV, we multiply the order value of $129 by the purchasing frequency of 4.55 to get a CLV of $588. Therefore if you would like to increase your CLV, you need to increase your AOV or purchasing frequency and ideally both to maximize your lifetime value per customer (LTV CAC). For context, LTV is just another way of saying CLV which is important for your SEO conversion rate and customer experience.
To increase your AOV per customer, you could execute upsells and cross-sells at checkout and post-checkout. Even more, you could create new products for your business that are in need by your existing customer base and sell them to your customers too increasing your number of sales as an example.
One of the best example to increase purchasing frequency and AOV for your business is email marketing. For instance, one CBD establishment surveyed by Metrilo has a 99.3% retention rate which means they have a very high number of purchasing frequency and LTV. They earned a high number of retention rate by utilizing personally timed replenishment emails based on the time a customer runs out of CBD of 61.1 days. Email marketing effectively allowed the establishment to have a high retention rate, purchasing frequency, AOV (value per order), and LTV.
What if you have higher than business customer acquisition costs due to expensive fees for marketing and advertising?
How do you reduce your acquisition cost to reduce your CAC and increase your gross margin profit marcgin?
There are multiple ways to reduce the sales costs of marketing and, therefore, your CAC (customer acquisition cost). One of the best ways to reduce your CAC (customer acquisition cost) and the expense of marketing is to reduce your business dependence on paid advertising and Amazon for sales to earn new customers. Since the expense of paid advertising for sales only goes up over time, here is how much paid advertising for sales has been increasing year over year:
- Meta (previously known as Facebook) CPM (expense per thousand) increased 61% year over year to $17.60/CPM for businesses.
- Google’s programmatic display CPM (expense per thousand) increased 75% year over year. Search ad CPC (expense-per-click) increased 14% year over year for businesses.
- TikTok’s CPM (expense per thousand) has increased 185% year over year, averaging USD $9.40/CPM for businesses.
- Instagram’s CPM (expense per thousand) increased 23% year over year for businesses.
Advertising costs only go up over time due to increased demand and competition for pricing. If your business depends on paid ads for your customers, you may spend double your current CAC pricing over the next year to two years. Remember that your business should focus on short-term tactics like paid advertising. Still, in the long term, your business needs to diversify its marketing strategy to gain new customers at a lower CAC.
Which Marketing Strategy Reduces Customer Acquisition Costs the Most for Customer Acquisition Cost of Your Products in Your Industry Example
The best marketing and advertising tactics and marketing strategy to generate traffic and bring down your mean/median CAC (customer acquisition cost) aka your costs or total cost of acquiring a single customer while increasing your LTV are earned and owned media for businesses.
Earned media is traffic and exposure that is earned and not bought this reduces your acquisition costs. The benefit of earned media is that even after your business stops investing in attracting earned media, all the traffic and customers gained continue for your business. Unlike paid marketing, where the moment your business stops paying for traffic and customers is the moment all traffic and customers stop coming to your business. Earned media reduces your CAC by providing leveraged returns on your investment over time, unlike paid advertising, where your returns are given as soon as you pay for exposure driving up your acquisition costs over time.
The returns for earned media compound over time, so you get greater returns for the same investment over time further reducing your acquisition costs. Investing in earned media can help your business reduce your marketing spend dependency on paid media and your CAC. Remember that it takes time to receive leveraged returns on earned media. You may not see a return for months when you begin investing in earned media. Still, your returns exponentially grow over time while your marketing spend stays the same. A good rule of thumb is to use paid media in the short term while you await exponential returns from your long-term investment in earned media.
Examples of Earned Media:
- Social Media Marketing.
- Digital PR.
- Traditional PR.
- Content Marketing.
- Video Marketing.
- SEO Services.
- Services SEO for existing customers and thought leadership with or without user consent.
Owned media is online property controlled and operated by your business and used for marketing to gain new customers. The difference between earned media and owned media is that earned media is technically rented. Think of social media marketing; your business owns the social media channels, but the social media companies own the entire platform and can do whatever they want with your social media channel. However, only your business owns your website, and you can do anything you would like with your business website since it is your platform.
The challenge with owned media is that you need to use earned and paid media to grow your owned media channels. However, you control that data once you own the audience that you grow using earned and paid media. You could do a lot more with it than if you did not use owned media as the foundation for collecting the data. The best example is your email list, which you do not grow without using earned or paid media.
However, once you have an email list, you can sell anything you want to your audience that you control. You can do anything you want with the audience’s data, which you control. That is what makes email marketing another form of owned media. Since you own the audience, you do not need to consistently pay to access your customers via paid media or consistently invest in accessing your customers via earned media. Owned media creates some of your establishment’s highest LTVs and AOVs while reducing your CAC with marketing.
Examples of Owned Media:
- Text message marketing
How to Calculate Your Customer Acquisition Cost for Your Company’s Customer Acquisition
To calculate your expense of acquisition, you take all of the spend used to gain new customers (marketing) and divide the total by the number of customers gained during the spend on marketing to gain new customers. For example, if a establishment spent $21,000 on marketing to gain new customers over a year. If the establishment gained 1,200 new sales over the year, then the company’s CAC is $17.50.
What is a Good Customer Acquisition Cost for Businesses and Sales to Acquire a Customer?
To determine a good customer acquisition spend, let’s use the example above, where a establishment has a CAC of $17.50. How do you know this is a good CAC to gain new customers and sales? We would use the spend ratio we discussed earlier in the article. For instance, this establishment has an overview LTV of $52.50 from customers. Meaning customers spend $52.50 with the brand before they stop spending with the establishment. To determine if $17.50 is a good CAC for $52.50, we would divide the LTV by the CAC, and if we got more than 3, then the CAC is not good. For instance, $52.50 divided by $17.50 (CAC) is exactly 3, which means the ratio is 1:3 for every customer the establishment makes three times this amount over the lifetime of those customers.
Frequently Asked Questions
What is a Good Cost Per Customer Acquisition?
In the dynamic world of ecommerce, understanding the cost to acquire a customer is pivotal. But what constitutes a ‘good’ cost? It’s not just about the upfront expense but the long-term value a customer brings. Consider the story of a CBD business. They might spend a certain amount to acquire a customer, but if that customer repeatedly purchases over their lifetime, the initial acquiring cost diminishes in significance.
The key is to strike a balance. If your CLV is substantially higher than your acquiring cost, you’re on the right track. For instance, if a CBD business has a CLV of $588, spending $100 or even $200 to acquire that customer can be considered good. But remember, industries vary, and what’s good for one might not be for another.
Always aim to increase your CLV, either by enhancing the average order value or by boosting purchasing frequency. Techniques like email marketing, as highlighted in the article, can be instrumental. By understanding and optimizing these metrics, you can ensure that your acquisition costs are not just good, but excellent for your business’s growth.
What is Amazon’s Customer Acquisition Cost?
Amazon, the ecommerce behemoth, has always been a trailblazer in the realm of customer acquisition. Their secret? A blend of Prime memberships, unparalleled customer service, and a vast product selection. While the exact CAC for Amazon can vary based on numerous factors, industry experts have often pointed to their Prime membership as a significant driver.
Prime members, enticed by perks like free two-day shipping and exclusive access to movies, music, and more, tend to shop more frequently and spend more than non-Prime members. This loyalty not only reduces Amazon’s CAC over time but also increases the lifetime value of these customers. By weaving a narrative of exclusivity and value, Amazon has masterfully turned a subscription service into a powerful customer retention tool.
Incorporating a similar strategy, albeit tailored to your business model, can be a game-changer. Consider loyalty programs or exclusive member benefits to entice and retain customers, ultimately reducing your CAC.
What is the Formula for CAC in eCommerce?
In the bustling world of eCommerce, understanding the cost of acquiring a new customer is paramount. The formula for Customer Acquisition Cost (CAC) is straightforward: CAC = Total Marketing and Sales Expenses ÷ Number of New Clients Acquired. Imagine a store spending $1,000 on marketing and gaining 50 new customers. Their CAC would be $20.
But why is this metric so crucial? Consider Sarah, who runs an online boutique. She invested heavily in advertising and saw a surge in new customers. By calculating her CAC, she realized that she was spending more to acquire a customer than they were spending on her products. This insight allowed her to adjust her strategy, ensuring long-term profitability.
Remember, while driving traffic and sales is essential, understanding the cost behind each new customer will ensure your eCommerce venture remains sustainable and profitable.
How Do You Calculate Cost Per Acquisition in eCommerce?
Cost Per Acquisition (CPA) is a pivotal factor for eCommerce companies. It represents the cost to acquire a new customer, from the first click to a completed sale. To calculate CPA, you simply divide the total marketing spend by the number of new clients acquired. For instance, if you spent $1,000 on advertising and gained 100 new customers, your CPA would be $10.
Imagine running two campaigns: one through social media and another via email marketing. By calculating the CPA for each, you can determine which channel is more cost-effective. Perhaps the social media campaign cost $500 and brought in 40 customers (CPA of $12.50), while the email campaign, with the same budget, resulted in 60 new customers (CPA of $8.33). This insight allows companies to allocate resources more efficiently.
It’s essential to monitor CPA regularly. A rising CPA might indicate that your ads are reaching a saturated audience, or that competitors are bidding up the price of keywords. Conversely, a decreasing CPA can signify improved ad performance or a more effective sales funnel.
What is the Median Cost Per Acquisition For Ecommerce?
The average cost per acquisition (or customer acquisition cost) for ecommerce is $49.06. This numeral was derived from extensive research on various websites providing data on the average acquiring cost specific to ecommerce.
What is the CAC (Customer Acquisition Cost) for an Ecommerce Site?
The CAC, or Customer Acquisition Cost, is the amount spent on marketing and other related expenses to acquire a new customer for an ecommerce site. This can vary by industry. For instance, the arts and entertainment ecommerce industry has a CAC of $21, while the business & industrial sector’s CAC stands at $533. Other industries like clothing, shoes, and accessories have a CAC of $129, and so on.
What is the Median Customer Acquisition Cost?
The average customer acquisition cost (CAC) across various ecommerce industries is $49.06. This is calculated by taking into account all the expenses (like marketing and advertising costs) required to get a new customer to make a purchase from an ecommerce site.
What is a Good Customer Acquisition Cost Rate?
A good customer acquisition cost rate is one that aligns with the 1:3 ratio of CAC to LTV. This means that for every dollar spent on acquiring a new customer, the business should ideally earn three times that amount over the lifetime of the customer’s relationship with the company. Using the provided example, if an establishment has a CAC of $17.50 and the overall LTV of its customers is $52.50, this forms a 1:3 ratio, indicating that the CAC is in a good range.