Sales were up, so you put more into Meta. Next month’s report says your cost per new customer went from £40 to £50. A bit higher, but you grew.
Your cost to win a new customer (CAC) rises when you keep adding budget to the same ads. Each extra pound reaches people less ready to buy, so the next customer costs more than the last. Average CAC hides this. Marginal CAC shows it.
Marginal CAC = extra spend ÷ extra new customers
One budget rise, followed through
You raise your Meta budget from £10,000 to £15,000 a month. The report shows:
£40 to £50 sounds fine. Now look at only the extra. The extra £5,000 won 50 more customers:
Each of those customers cost £100. Now check what a customer is worth. Each order leaves £33.50 after product, shipping, payment fees and returns, and customers order 2.4 times in a year. That is £80.40 of profit per customer.
Try it. Set the order to £70, profit to 48%, orders to 2.4 and CAC to £100:
Try it with your numbers
Can you afford this customer?
Pays back within 12 months, on about order 2.
Why more of the same makes it worse
The instinct is to work the channel harder: more budget, more retargeting. The platform earns more when you spend more, and a Meta specialist sees a Meta answer. Retargeting then reports a great return from people who were already close to buying, and finds you no new customers.
Before the next £5,000 goes into the same ads, see what a fair test of a second channel would cost.
What to do instead
- Fix conversion first. The cheapest customer is the visitor you already paid for and lost on a slow or confusing product page. Raise conversion from 2% to 2.5% and CAC falls by a fifth with no extra spend. See CRO.
- Test a second channel properly. Pick one, give it a budget big enough to learn, and judge it after the test. Easier Ads Budgeting works out that budget.
- Run brand ads as well as sales ads. Sales ads catch people ready to buy. Brand ads make more people ready next month. You need both. More on brand and performance.
- Measure from your real sales. Judge total spend on MER, from Shopify, so you back what grows sales, not what reports well.
Staff, rent and software do not rise with each customer, so keep them out of CAC. Check them monthly: did profit after ads cover them?
Related reading
- Free Black Friday audit: we check your account before the busiest weeks
- CAC vs LTV: what a customer is worth, step by step
- Break-even ROAS: the return each channel needs to make
- Easier Ads Budgeting: how much a new channel test needs to spend, and for how long
Peak is when the extra customer costs most. Let's find out what yours really costs, free.
Watching your CAC climb every month? Book a free call and we’ll find where the extra spend is going.
Quick answers
Why does CAC keep rising?
When you keep adding budget to the same channels, the ads reach people who are less ready to buy, so each extra customer costs more. Crowded ad auctions push prices up as well.
What is marginal CAC?
Marginal CAC is what the extra customers cost you when you raise spend. Divide the extra spend by the extra new customers it brought. It is usually higher than your average CAC.
How do I lower CAC?
Convert more of the visitors you already pay for, test a second channel properly, and run ads that build demand as well as ads that catch buyers who are ready now.
Should I just cut ad spend?
Not by default. Cut back to the level where your marginal CAC is still lower than what a customer is worth to you, then fix conversion before you spend more.
