The Great $2 Victory
A few years ago, while reviewing the performance of an ecommerce business, things seemed to be going well – Sales were coming in, customers were buying, everyone seemed happy.
Until the weekly marketing meeting…
As always, the spotlight quickly turned to Customer Acquisition Cost (CAC). The team had managed to reduce CAC from $22 to $20.
What happened next?
Celebrations, high-fives exchanged, someone must have even taken it a step further to update this achievement on their Linkedin profile.
Long story short – What a success!!!
All of this seemed too easy – until…
I asked a simple question: “What was the Average Order Value?”
Crickets doing yoga! (I love that phrase..)
I wouldn’t call it awkward because it almost seemed like nobody had looked at that number in a while. Or had no clue what I was talking about.. (I really hoped not)
Turns out the business had spent weeks trying to save $2 on CAC while completely ignoring the fact that increasing Average Order Value (AOV) by $10 would’ve had a much bigger impact on revenue and profitability.
That conversation stuck with me. Because it highlights a mistake I see founders make all the time.
They obsess over CAC and almost never think about AOV.
Before we decide which metric deserves more attention, let’s quickly understand what each one actually means. And then we can finally put the CAC vs AOV debate to rest.
What Is CAC?
Customer Acquisition Cost (CAC) measures how much it costs to acquire a new customer.
The formula is simple:
CAC = Total Marketing Spend ÷ Number of New Customers
If you spend $5,000 on advertising and acquire 250 customers:
CAC = $20
In other words, every new customer costs you $20 to acquire.
The lower the CAC, the more efficient your marketing becomes.
At least in theory.
What Is AOV?
Average Order Value (AOV) measures how much the average customer spends per order.
The formula is equally straightforward:
AOV = Revenue ÷ Number of Orders
If your store generates $10,000 from 200 orders:
AOV = $50
Simple enough.
The higher your AOV, the more revenue each customer generates every time they purchase.
And unlike CAC, you often have far more control over it than you realize.
The Math Nobody is Talking About
For my love of math and explaining concepts – let’s look at 2 stores.
Store A
Focuses heavily on reducing CAC
Store B
Focuses heavily on increasing AOV
| Metric | Store A | Store B |
|---|---|---|
| CAC | $18 | $20 |
| AOV | $50 | $65 |
| Customers | 1,000 | 1,000 |
| Revenue | $50,000 | $65,000 |
| Marketing Spend | $18,000 | $20,000 |
Even though Store B pays more to acquire customers, it generates significantly more revenue. Let’s calculate the difference:
| Metric | Store A | Store B |
| Revenue | $50,000 | $65,000 |
| Marketing Spend | $18,000 | $20,000 |
| Remaining Revenue | $32,000 | $45,000 |
Store B earns $13,000 more despite having the worse CAC.
Nobody deposits CAC into a bank account. Businesses survice on profit!
This is why looking at a single metric in isolation can be dangerous.
Why Everyone Obsesses over CAC
CAC feels tangible. You lower it from $22 → $20 and immediately feel productive. The dashboard starts looking better, the reports look better and weekly meetings start giving very good vibes.
The problem?
CAC becomes increasingly difficult to improve over time. Advertising platforms operate through auctions, competitors enter the market, CPMs (Cost per mille) increase. All in all, customer attention becomes more expensive and at some point, squeezing another dollar out of CAC becomes extremely difficult.
This is also one of the reasons why I encourage businesses to look beyond a single metric. A low CAC doesn’t automatically mean your campaigns are profitable, just as a high CAC doesn’t automatically mean they’re failing. If you’ve ever celebrated ROAS only to wonder where the profits went, I covered that in detail in Why ROAS Can Be Misleading.
Why is AOV often Easier to Improve
AOV usually sits inside the business – YOU control it.
You don’t need Meta’s permission, you don’t need Google’s permission and you certainly don’t need lower CPMs.
Once the traffic is on your site, your job shifts from acquiring attention to increasing value. Better bundles, stronger offers, more attractive pricing structures and thoughtful upsells can all encourage customers to spend more than they originally intended.
Some common ways businesses increase AOV:
- Product bundles
- Quantity discounts
- Upsells
- Cross-sells
- Free shipping thresholds
- Premium versions of existing products
For example:
Instead of selling 1 product for $40, you create a “Buy 2 and Save 10%” deal. Suddenly many customers spend $72 instead of $40.
Same customer, same CAC but now you just unlocked more revenue.
The Free Shipping Trick
This is probably one of the most common AOV strategies in ecommerce and I can vouch for it because I’m guilty of implementing it on my own store(s).
Let’s say your AOV is $55. You offer free shipping on orders above $75. All you have to do now is show some more products that the customer can add to their cart in order to avail the free shipping offer.
Customers who were planning on spending $55 now add another product to avoid paying shipping. End result?
Your AOV increases, the customer feels like they won. You make more revenue. Everybody leaves happy. Win win!!!
Well, almost everybody… the shipping company still wins regardless and you’re footing that bill (haha)
When AOV Can Become Dangerous
Before everyone starts chasing higher AOVs now, there’s something important to understand. As I always tell everyone, READ THE FINE PRINT.. ALWAYS!
Higher AOV is not automatically better. How you achieve it makes the difference.
In order to achieve that higher AOV, you disregard whatever I’ve said and simply increase your selling price from $50 → $80. Increase in revenue achieved – Fantastic!
Except.. Your conversion rate fell from 3% → 1% and suddenly fewer customers are purchasing.
The higher AOV may not compensate for the lost sales. This is why every metric needs context.
AOV should increase profitability, not simply produce larger numbers.
When CAC Matters More
I don’t hate CAC – I think it’s a very useful metric and there are situations where CAC deserves most of your attention. If you’re a:
- New business trying to validate a market
- Business with very low margins
- Subscription business with weak retention
- Company operating in highly competitive industries
If acquiring customers costs more than you can realistically earn from them, no amount of AOV optimization will save your business. Because at this point, the the business model simply stops working!
So CAC vs AOV: Which Metric Should You Improve?
The answer nobody enjoys hearing is:
IT DEPENDS.
But if you forced me to choose only one metric to improve tomorrow?
I’d usually start with AOV. Not because CAC is unimportant (I just told you why), but because AOV is often easier to influence.
You control:
- Pricing
- Bundles
- Offers
- Upsells
- Product positioning
You don’t control:
- Competitor bidding
- Advertising auctions
- Rising CPMs
- Platform algorithm changes
One metric lives largely inside your business, the other is heavily influenced by forces outside your control.
Founders often spend months fighting advertising platforms, algorithms and rising acquisition costs. Meanwhile, opportunities sitting inside the business go untouched. Before trying to beat the auction, make sure you’ve optimized the things you actually control.
Always control the controllables – start with AOV!
The Hidden Advantage of Higher AOV
Imagine two stores acquiring 1,000 customers per month.
Store A has an AOV of $50.
Store B has an AOV of $70.
Store B generates an additional $20,000 in monthly revenue from the exact same number of customers.
Over a year, that’s $240,000.
No additional traffic. No additional ad spend. No additional customers.
Let that sink in!
Want to Calculate Your CAC?
Before trying to improve any metric, you should know exactly where you stand. So I built this CAC calculator which you can use (for free) to determine how much you’re currently paying to acquire each customer.
Want to Understand Your Real Profitability?
A strong AOV and low CAC can still produce disappointing profits if your margins are weak.
So I also built an Ecommerce Profit Calculator to see how all the pieces fit together.
Key Takeaways (TLDR)
- CAC vs AOV: A fairly misunderstood concept
- CAC measures how much it costs to acquire a customer.
- AOV measures how much customers spend per order.
- Most businesses focus heavily on CAC and ignore AOV.
- Increasing AOV can often produce larger gains than reducing CAC.
- AOV is usually easier to influence because it sits inside your business.
- Bundles, upsells and free shipping thresholds can all increase AOV.
- Higher AOV is not always better if conversion rates suffer.
- CAC and AOV should be viewed together, not in isolation.
- If forced to choose one metric to improve, AOV is often the more controllable lever.
The goal is not to win the battle for lowest CAC. The goal is to build a profitable business.
Sometimes, the biggest opportunity isn’t acquiring customers more cheaply, but helping customers you already acquired to spend a little more.
