Digital MarketingModule 4: Measurement and economicsLesson 11 of 17
Course progress59%
20 min lesson · Updated August 2026
What are CAC, ROAS and ROI?
CAC estimates the cost to acquire a new customer, ROAS compares attributed advertising value with ad spend, and ROI compares net return with total investment; each uses different inputs and none should be treated as profit without the right costs.
What you will learn
By the end, you will understand:
Calculate CAC, ROAS and ROI with explicit definitions
Recognize revenue, value, margin and profit differences
Avoid comparing incompatible periods, cohorts and attribution models
Visual explainer
See the idea clearly.
A calculator separates total acquisition cost and new customers for CAC, attributed revenue and ad spend for ROAS, and net return and total investment for ROI, with margin and attribution caveats.
Three formulas
Metric
Formula
CAC
Total relevant customer-acquisition cost ÷ number of new customers acquired.
ROAS
Attributed advertising revenue or defined conversion value ÷ advertising spend (often expressed as ratio or percentage).
ROI
(Return attributable to investment − total investment cost) ÷ total investment cost.
A worked example
A campaign spends $5,000 on media and $2,000 on creative/management, acquiring 50 genuinely new customers. Media-only platform ROAS on $20,000 attributed revenue is 4.0 (400%). Blended CAC is $7,000 ÷ 50 = $140.
If the $20,000 revenue produces $8,000 gross profit before campaign cost, a simple campaign ROI using $7,000 total cost is ($8,000 − $7,000) ÷ $7,000 ≈ 14.3%. Definitions and other costs can change this.
ROAS is not profit
ROAS commonly uses revenue or assigned conversion value before product cost, refunds, discounts, shipping, tax handling, agency/creative/technology cost and overhead. A high ROAS can still lose money.
Google Ads describes conversion value/cost as a ROAS estimate. Make sure values represent real business priorities and are deduplicated; a default lead value is not realized revenue.
CAC needs a cost boundary
Media spend
Agency/contractor fees
Creative production
Marketing salaries allocation
Sales cost if using combined CAC
Tools/data
Promotions/discount cost where relevant
New customers only
Attribution period
Cohort/time horizon
Organic/brand allocation assumptions
Compare CAC with customer economics carefully
A business may compare CAC with contribution margin or LTV, but acquisition payback timing, churn, refunds and cash flow matter. A ratio built from optimistic LTV and short-term CAC can mislead.
Use consistent cohorts and definitions. New customers acquired this month may generate value over future months; do not divide unrelated totals without explaining timing.
Platform values can overlap
Several platforms can each claim credit for the same purchase under their own windows, identity and view/click rules. Adding all attributed revenue can exceed actual revenue.
Reconcile with finance/order systems and compare attribution models rather than treating every platform dashboard as independent causal revenue.
Decision table
Question
Metric
How expensive was each new customer?
CAC with stated cost/customer scope.
How much attributed value per ad-spend unit?
ROAS.
Was the total investment economically worthwhile?
ROI or contribution/payback analysis.
Can we afford growth?
Margins, payback, cash flow, capacity and retention in addition.
Real-world example
Example: 500% ROAS but negative margin
Example
A store reports $50,000 attributed revenue from $10,000 media spend: 500% ROAS. Product, shipping, returns, creative and platform fees total more than contribution, so the campaign loses money. The ROAS calculation was correct but incomplete for profitability.
Try this
Calculate with a definition sheet
Use one period and write media spend, total acquisition cost, new customers, attributed revenue, actual revenue, gross contribution and attribution model. Calculate CAC, ROAS and a clearly scoped ROI.
Common questions
Questions beginners ask.
What is CAC?
Customer acquisition cost: defined acquisition costs divided by genuinely new customers acquired.
What is ROAS?
Return on ad spend: attributed advertising revenue/value divided by ad spend.
What is ROI?
Return on investment: net return relative to total investment under an explicit scope.
Is ROAS profit?
No. It commonly ignores many product, fulfilment and operating costs.
Should CAC include salaries?
Use a clearly stated scope; blended CAC often includes relevant marketing/sales people and tools, while platform CAC may be media-only.
What is break-even ROAS?
The ROAS needed to cover the costs included in a specific margin model; it varies by business and cost scope.
Can two platforms claim the same sale?
Yes. Different attribution windows/rules can overlap, so reconcile with actual revenue.
Why does cohort timing matter?
Acquisition cost occurs now while customer value may arrive later and vary by retention.
