Start With the Customer Economics
Customer acquisition cost (CAC) is the acquisition spend required to gain one new customer. At a basic level, calculate it as the relevant acquisition spend for a period divided by the number of first-time customers acquired in that period. CAC is a decision measure, not a universal benchmark: the affordable limit depends on your selling price, gross margin, fulfilment economics, refund exposure and cash position.
Use the economics of the first order to decide what you can afford to pay now. If that order cannot cover CAC while leaving an acceptable contribution, increasing spend can make each new customer unprofitable even when reported revenue grows. A longer-term customer value view is different: it asks whether repeat purchases may recover an initially unprofitable acquisition. That can support a controlled test, but it should not be used to hide weak first-order economics or assume repeat orders will occur.
Keep the revenue basis consistent. The Australian Government’s business.gov.au explains that GST is 10% on most goods and services, with registered businesses collecting the GST portion, one-eleventh of the sale price, and registering once GST turnover reaches $75,000 or more. If your store is GST-registered, assess the limit against GST-exclusive revenue (Source: business.gov.au (Australian Government)).
| Measure | What it tells you | When to act on it |
|---|---|---|
| First-order contribution after CAC | Whether the initial purchase supports the acquisition cost | Setting a current CAC ceiling or deciding whether to scale |
| Customer value over repeat orders | Whether later purchases may repay an initial acquisition loss | Planning retention investment or testing a controlled payback period |
What Belongs in Acquisition Cost
Count costs that exist to win a first-time customer. This includes paid social, search, shopping and affiliate media; the creative produced specifically for those campaigns; agency or freelancer fees for acquisition work; and the acquisition share of tools such as feed, landing-page or attribution software. Include referral commissions, first-order vouchers, free gifts and other promotions when they are the incentive used to acquire the customer. Allocate shared costs consistently rather than assigning the full invoice to one channel.
Keep fulfilment, product and overhead costs outside CAC. Exclude ingredients and packaging included in the product cost model, pick-and-pack, delivery, returns handling, payment fees, warehouse costs, rent, wages and general administration. Those costs determine order margin or operating profit, not the cost of acquiring the buyer. Retention activity, such as post-purchase email, belongs outside CAC unless the spend is specifically for a new-customer campaign.
Use one basis throughout: acquisition spend divided by newly acquired customers in the same period. Do not mix GST into the comparison for a GST-registered store. The Australian Government says GST is 10% on most goods and services, and registered businesses collect the GST portion as one-eleventh of the sale price. For a practical check, use the CAC calculator, then compare the result with contribution after advertising rather than revenue alone (Source: business.gov.au (Australian Government)).
Worked example with sample numbers
This example is illustrative. It uses sample numbers for a vegan food store selling in Australia. They are made up to show the method, they are not a benchmark, and your own figures will differ.
Formula: Ceiling = margin per order x orders per customer / target ratio.
| Orders per customer | Margin earned | Ceiling at a 3:1 target |
|---|---|---|
| 1.0 | A$30.42 | A$10.14 |
| 1.5 | A$45.62 | A$15.21 |
| 2.0 | A$60.83 | A$20.28 |
| 3.0 | A$91.25 | A$30.42 |
Run the same sum with your own numbers in the free calculator, or browse guides for sellers in Australia and more vegan food guides.
General information only: tax, duty and import rules change and depend on your situation, so check with an accountant or the official source before acting.
Eligible Shopify stores can see these numbers for their own store through the Founding 10,000 offer.
Use First-Order Margin as the Ceiling
The first-order contribution is the initial maximum CAC because it is the cash left from the customer’s first delivered order before acquisition spend. Calculate it from realized revenue, then subtract the product cost, payment fee, fulfilment shipping cost and any discount. If the store charges the customer for shipping, include that shipping revenue and the related shipping cost separately. A CAC equal to this contribution leaves zero to cover overhead, so a practical limit normally sits below it.
For a GST-registered store, separate GST from revenue. business.gov.au (Australian Government) states that GST is 10% on most goods and services and that registered businesses collect the GST portion, one-eleventh of the sale price. For illustration only, a customer pays A$115 after a A$10 discount, including A$5 shipping. Net revenue is A$104.55 after removing GST. If product cost is A$35, payment fees A$3 and shipping cost A$8, first-order contribution is A$58.55. The initial break-even CAC ceiling is therefore A$58.55, before overhead and any further allowance you choose for risk (Source: business.gov.au (Australian Government)).
Use delivered-order figures rather than orders placed: cancelled or returned orders should not inflate the ceiling. The CAC calculator can structure this arithmetic; ORVX can also report contribution after advertising by product and collection, so you can see whether a store-wide ceiling hides an unprofitable product mix.
How Repeat Orders Change the Limit
Repeat orders can support a higher CAC limit, but only when they are measured by customer cohort and within a defined time window. Add the contribution from delivered repeat orders, not their revenue, to the first-order contribution, then subtract any retention or servicing costs included in your calculation. For illustration only, if the first order contributes $18 and customers generate two observed repeat orders contributing $14 each within six months, the six-month contribution limit is $46 before acquisition spend. A CAC of $35 may therefore be acceptable on a six-month basis, even though it exceeds the first-order contribution. Use the first-order limit when cash recovery must happen immediately; use the cohort limit when you can fund the payback period and retention is consistent.
A forecast repeat order is not realised value. Do not increase today’s CAC limit because a customer might reorder next quarter. Report retention timing, repeat-order margin and the share of customers actually reaching each order. ORVX shows customer-level profitability and repeat behaviour, while its forecasts use completed months and publish backtested error; treat that output as planning evidence, not booked contribution. You can test the arithmetic in the CAC calculator.
How to Read the Worked Example
Read the worked example from left to right. First identify the inputs shown: the first-order sales value, the costs deducted before acquisition, and the acquisition spend used to test the result. Keep the calculation on a delivered first order and use the same GST treatment and currency throughout. Do not replace the example’s inputs with an industry benchmark or an advertised platform metric.
Next follow the arithmetic sequence: calculate the contribution available from the first order, then subtract the acquisition cost to see what remains. The resulting first-order contribution is the CAC ceiling, not a target that every campaign should spend. A campaign below the ceiling can still be unattractive if its returns, fulfilment costs or cash timing are worse than assumed. Use the CAC calculator to repeat the calculation with your store’s inputs.
Finally, read the sensitivity checks as boundaries. Change one assumption at a time, such as order value, variable cost or conversion-related acquisition spend, and observe how the ceiling moves. If a small change removes the margin, treat the limit as fragile and set a lower operating cap.
Sources
- Register for goods and services tax (GST) (business.gov.au (Australian Government), checked 26 October 2026).
How this page was made: drafted with AI from a brief, then checked by automated rules for arithmetic, sources and duplication. The sample numbers were calculated, not reported.