ROIChecker
CPA 8 min read

CPA vs. CAC: the difference that defines whether your business is scalable

Many ecommerce businesses use CPA and CAC interchangeably. They are different metrics that answer different questions. Understanding which is which can completely change your perspective on the real profitability of your business.

Definitions: what each metric measures

CPA

Cost Per Acquisition

How much it costs to acquire a sale through paid advertising.

Includes:

Only direct advertising spend

CAC

Customer Acquisition Cost

Total cost to acquire a new customer, using all business resources.

Includes:

Advertising + team + tools + content + everything else

CPA is a subset of CAC. Advertising CPA is always lower than or equal to total CAC. In businesses with small teams and little infrastructure, the difference can be small. In businesses with large marketing teams or many tools, the difference can be enormous.

CPA — tactical

Lives in the ad manager. It is the metric you adjust daily by raising bids, changing creatives or redistributing budget between ad sets.

CAC — strategic

Lives in the P&L. It is the metric the CFO or founder looks at to decide whether the business model scales, whether to hire more team, or whether to raise average order value.

How to calculate your real CAC

CAC is calculated by dividing all marketing and sales costs for a period by the number of new customers acquired in that same period.

CAC Formula

CAC = Total marketing and sales costs ÷ New customers

Costs to include in CAC:

Direct costs

  • Meta Ads spend
  • TikTok Ads spend
  • Google Ads spend
  • Influencer collaborations
  • Other channel advertising

Indirect costs

  • Marketing team salaries
  • Tools (CRM, email, analytics)
  • Content and creative production
  • Agencies or freelancers
  • SEO and link building

Example: supplements ecommerce, October

Advertising spend (Meta + Google) £4,200
Marketing team salary (proportional) £1,800
Tools (Klaviyo, GA4, etc.) £320
Creative production £600
Total marketing costs £6,920
New customers in October 230
Real CAC £30.09
Advertising CPA (ads only) £18.26

Advertising CPA (£18.26) is 65% of real CAC (£30.09). The difference represents team and tool costs not reflected in CPA.

The LTV:CAC ratio: the scalability indicator

CAC alone does not tell you whether the business is profitable long-term. For that you need to compare it with customer LTV (Lifetime Value): how much a customer generates throughout their relationship with the business.

Interpreting the LTV:CAC ratio

< 1:1

Each customer destroys value. The business is not viable.

1:1 – 2:1

Minimal profitability. No margin left to operate and grow.

2:1 – 3:1

Profitable but with little margin. Hard to scale.

3:1 – 5:1

Healthy zone. Profitable with room to grow and reinvest.

> 5:1

Excellent. May indicate you can invest more in acquisition.

Following the example: if the average LTV of a supplements customer is £150 (purchases every 2 months for 18 months) and CAC is £30, the LTV:CAC ratio is 5:1. Excellent zone. The business can afford to invest more in acquisition.

Calculate your target CPA

Based on your margin and the ROI you need, calculate the maximum CPA you can afford.

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Related guides

CPA

What is CPA?

CPA

How to reduce CPA in ecommerce

ROI

How to improve ROI in ecommerce

Tool

CPA Calculator

Frequently asked questions

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