Customer Retention vs. Customer Acquisition Cost: Why eCommerce Stores Should Focus on Repeat Buyers

Introduction

Customer acquisition costs (CAC) have skyrocketed, with brands now losing an average of $29 for every new customer acquired, compared to $9 back in 2013. This stark reality is forcing online retailers to rethink their growth strategies.

While attracting new customers will always be important, the most successful eCommerce businesses in 2025 are those that master the art of keeping existing customers coming back for more. The math is simple but powerful: it costs 5-25 times more to acquire a new customer than to retain an existing one.

Returning customers spend more, buy more frequently, and become advocates for your brand creating a flywheel effect that drives sustainable growth.

In this article, we'll break down the critical metrics of customer acquisition cost and customer retention, show you how to calculate them, and give you practical strategies to improve both.

What is Customer Acquisition Cost (CAC)?

Customer Acquisition Cost (CAC) is the total amount of money your business spends to acquire a new customer. This key performance metric provides insight into how efficiently your marketing and sales efforts convert prospects into paying customers.

CAC includes all expenses related to acquiring new customers, such as:

• Advertising costs (social media ads, Google Ads, display ads, etc.)
• Marketing team salaries and commissions
• Content creation expenses
• Sales team salaries and commissions
• Software tools for marketing and sales
• Agency fees or consultant costs

A high CAC indicates you're spending more to acquire each new customer, which directly impacts your profitability. Meanwhile, a lower CAC suggests your acquisition strategy is more efficient, allowing you to bring in new customers at a lower cost.

The challenge today is that CAC has been steadily increasing across most industries. Privacy regulations like GDPR and CCPA, along with platform changes like Apple's iOS privacy updates, have made targeted advertising more difficult and expensive. The digital marketplace is also more crowded than ever, driving up the cost of ads and making it harder to stand out.

How to Calculate CAC

Calculating your Customer Acquisition Cost is straightforward. Simply divide your total acquisition expenses by the number of new customers acquired during a specific period:

CAC = Total Acquisition Costs / Number of New Customers Acquired

For example, if your business spent $50,000 on marketing and sales in a quarter and acquired 500 new customers during that time, your CAC would be 100 per customer. But is that good or bad? To answer that question, you need to know how much revenue each customer generates over their lifetime (Customer Lifetime Value or CLV).

Most businesses should calculate CAC quarterly or monthly to track changes over time and respond quickly to concerning trends.

What is Customer Retention?

Customer retention measures your ability to keep customers over time. It's about creating such a positive customer experience that customers choose to continue buying from you rather than your competitors.

Effective customer retention includes:

• Providing excellent customer service
• Delivering consistent product quality
• Creating personalized experiences
• Offering loyalty programs and incentives
• Maintaining regular communication
• Resolving issues quickly and effectively

Strong retention brings multiple benefits beyond just repeat purchases:

1. Higher customer lifetime value: Retained customers typically spend more over time and often increase their average order value.
2. Reduced marketing costs: You don't need to spend acquisition dollars on customers you already have.
3. Brand advocacy: Happy, loyal customers refer others, essentially becoming an extension of your marketing team.
4. Valuable feedback: Long-term customers provide insights that help you improve your products and services.
5. Stability and predictability: A stable base of returning customers creates more predictable revenue streams.

How to Calculate Customer Retention Rate

The formula for calculating customer retention rate is:

Retention Rate = ((Number of Customers at End of Period - New Customers Acquired During Period) / Number of Customers at Start of Period) × 100

For example, let's say you: 

• Started the quarter with 1,000 customers
• Acquired 200 new customers during the quarter
• Ended the quarter with 950 customers

This means you retained 75% of your customers from the beginning of the period. The flip side of retention is churn in this case, a 25% churn rate.

Tracking this metric over time helps you understand if your retention efforts are working. Improving retention by just 5% can increase profits by 25% or more, according to research by Bain & Company.

The Difference Between CAC and Customer Retention

While CAC and customer retention are related metrics, they serve different purposes in your business strategy:

The key relationship between these metrics is their impact on overall profitability. High CAC can be justified if you have strong retention that leads to high customer lifetime value. Conversely, even a low CAC might not lead to profitability if customers don't stick around.

The Ideal Metrics for Both CAC and Retention

Ideal CAC

There's no universal "good" CAC that applies to all businesses. The ideal CAC depends on your:

• Industry
• Business model
• Average order value
• Customer lifetime value
• Profit margins
• Growth stage

However, a useful benchmark is the CAC:CLV ratio. Most successful businesses aim for a CLV at least 3 times higher than their CAC. This means for every dollar spent acquiring a customer, they generate at least $3 in profit over the customer's lifetime.

Ideal Retention Rate

Like CAC, ideal retention rates vary by industry and business model. However, some general benchmarks include:

• Excellent: 85%+ retention rate
• Good: 75-85% retention rate
• Average: 60-75% retention rate
• Needs improvement: Below 60% retention rate

The most important thing isn't necessarily having the highest retention rate in your industry, but rather improving your retention rate over time and ensuring it supports a profitable business model.

Why Retention Trumps Acquisition in 2025

1. Rising Acquisition Costs

The cost to acquire new customers has increased dramatically. Data shows that CAC has risen by over 200% across many industries since 2013. Privacy changes, increased competition, and platform algorithm shifts have all contributed to this trend.

2. Higher Profit Potential

Returning customers are significantly more profitable:

• They have a 64% higher chance of making a purchase compared to new customers
• They spend 33% more per order on average
• They're 50% more likely to try new products
• The probability of selling to an existing customer is 60-70%, compared to 5-20% for a new prospect

3. The Loyalty Momentum Effect

When customers develop loyalty to your brand, it creates a positive feedback loop:

• More frequent purchases
• Higher average order values
• Greater willingness to try new products
• More engagement with your content
• Increased likelihood to refer others

This "loyalty momentum effect" multiplies the value of each retained customer well beyond their direct purchases.

4. Data Advantages

Existing customers provide valuable first-party data that helps you:

• Personalize experiences more effectively
• Predict future buying behavior
• Identify cross-selling and upselling opportunities
• Fine-tune your product offerings
• Create more effective marketing campaigns

In a privacy-focused digital world, this first-party data is increasingly valuable compared to third-party data used for new customer acquisition.

5. Brand Advocacy

Loyal customers become advocates who:

• Refer new customers at no additional cost
• Create positive reviews and testimonials
• Defend your brand against criticism
• Provide authentic user-generated content
• Have more credibility with prospects than your marketing

This customer-driven acquisition is not only free but also typically results in higher-quality new customers who convert at higher rates.

Practical Ways to Reduce CAC and Improve Retention

Reducing CAC

Optimize your acquisition channels by taking a data-driven approach to your marketing spend. Start by identifying which channels bring the highest quality customers at the lowest cost.

Once you know which channels perform best, reallocate your budget away from underperforming areas and toward your winners. Don't stop at simple reallocation continuously test different targeting criteria to improve conversion rates across all channels.

Refine your targeting to focus on prospects who resemble your best current customers. Create detailed buyer personas based on the characteristics and behaviors of your most valuable customers.

This allows you to focus your acquisition efforts on the prospects most likely to convert and become loyal customers. Tools like lookalike audiences on social platforms can amplify this approach by finding new people who share traits with your top customers.

Improve conversion rate optimization throughout your purchase funnel. Test different landing pages, copy variations, and offers to see what resonates best with potential customers.

Pay special attention to your checkout process each step you can streamline reduces abandonment rates. Adding social proof and testimonials at key decision points builds trust and tips hesitant prospects toward conversion.

Leverage user-generated content to build authenticity and trust. Authentic customer reviews and testimonials are far more persuasive than your own marketing claims.

Feature real customer stories and case studies that showcase how your products solve problems. Incorporate customer photos and videos in your marketing to show your products in real-life contexts.

Implement referral programs that turn customers into advocates. Create meaningful incentives that motivate existing customers to refer new business.

Make the sharing process frictionless with pre-written messages and easily shareable links. The most effective programs offer rewards to both the referrer and the new customer, creating a win-win situation that drives program participation.

Improving Retention

Deliver exceptional onboarding from the moment a customer makes their first purchase. Create clear, helpful guides that help new customers get maximum value from your products. Provide proactive support during those crucial early days of the customer relationship.

Setting proper expectations about product usage and results prevents disappointment and builds long-term satisfaction.

Personalize the customer experience based on their history with your brand. Use the customer data you've collected to tailor product recommendations that actually match their interests and needs. Send personalized emails that reference past purchases and behaviors. For returning visitors to your website, customize the experience based on their browsing and purchase history.

Implement a loyalty program that makes staying with your brand the obvious choice. Move beyond simple points systems by rewarding repeat purchases with meaningful benefits that customers actually value.

Create tiered programs that encourage customers to reach higher levels of engagement. Consider offering experiential rewards beyond just discounts, such as early access to new products, exclusive events, or premium content.

Provide proactive customer service instead of waiting for problems to arise. Reach out to customers at key moments in their journey to ensure everything is going well. Send follow-up messages after purchases to confirm satisfaction.

Make getting help easy by offering support through multiple channels, including self-service options for simple questions.

Create post-purchase engagement that extends the customer relationship beyond the transaction. Send helpful follow-up emails with usage tips and best practices. Build a community around your products where customers can share experiences and ideas.

Share educational content that helps customers get more value from what they've purchased, positioning your brand as a valuable resource rather than just a vendor.

Gather and act on feedback to show customers they're being heard. Regularly ask for opinions about their experience with your products and services.

When you implement suggestions, make sure to circle back and let customers know their input made a difference. Always close the loop with customers who report problems, confirming the issue was resolved to their satisfaction.

How Flxpoint Helps Balance Acquisition and Retention

For eCommerce businesses with complex fulfillment models, managing both acquisition and retention requires specialized tools. While you can focus on these metrics, Flxpoint helps you manage the back-end operations of your business in several key ways:

Streamlined Operations for Better Customer Experience

Flxpoint helps you create a seamless customer experience by:

• Centralizing inventory management across all fulfillment sources, ensuring accurate stock levels and preventing disappointing out-of-stock situations.
• Automating order routing to the optimal fulfillment location, reducing shipping times and costs.
• Providing real-time inventory updates across all sales channels, creating consistency for customers shopping on different platforms.

These operational improvements directly impact retention by delivering a consistent, reliable experience that builds trust.

Rich Product Data for Better Marketing

With Flxpoint's product information management capabilities, you can:

• Maintain consistent product information across all channels, creating a unified brand experience
• Enrich product listings with detailed attributes, images, and specifications that help customers make confident buying decisions
• Quickly update product information across all channels, ensuring customers always see the most current details

This rich product data not only improves conversion rates for new customers but also creates a better shopping experience for returning customers.

Multi-Channel Presence Without the Complexity

Flxpoint enables you to:

• Expand to new sales channels without multiplying your workload
• Maintain consistent inventory across all channels, preventing overselling
• Synchronize pricing and promotions across platforms

This multi-channel presence allows you to meet customers where they prefer to shop, increasing both acquisition opportunities and retention through convenience.

Data Insights for Personalization

Flxpoint provides valuable data that helps you:

• Identify your most profitable products and customers
• Understand purchasing patterns to inform marketing and inventory decisions
• Recognize cross-selling and upselling opportunities based on actual purchase behavior

These insights enable the personalization that drives higher retention rates and lifetime value.

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