Decoding Customer Acquisition Cost: Are Coupon Codes the Real Culprit?

Every eCommerce founder knows the drill: launch a campaign, slap on a discount code, watch conversions roll in. But those coupon campaigns might be why your customer acquisition cost keeps climbing while profit margins keep shrinking.

Customer acquisition cost (CAC) determines whether your business thrives or merely survives. It’s the total amount you spend on sales and marketing efforts to acquire customers. 

The challenge is blancing acquisition costs with profitability while building a sustainable customer base with a growing number of new customers that doesn’t rely on constant discounting.

Most Shopify merchants lean heavily on coupon codes for customer acquisition. 

But these discount-dependent strategies could be masking a larger CAC problem. Instead, cashback —a more sustainable alternative—could reduce your average customer acquisition costs while increasing customer lifetime value. 

In this article, we’ll decode coupon codes’ hidden costs, explore how cashback with Postscript creates better customer acquisition strategies, and show you how to calculate customer acquisition cost for maximum profitability.

When you calculate customer acquisition cost using the traditional formula, coupon codes seem straightforward: reduce margins slightly to acquire customers faster. But discount-dependent customer acquisition runs much deeper than immediate profit margin hits.

Every coupon directly erodes profit margins. 

A 20% discount means 20% less revenue per sale. When factoring this into your CAC calculations, you’re looking at marketing expenses plus the opportunity cost of reduced revenue, dramatically inflating actual acquisition costs.

The long-term effects are worse:

• Discount-dependent customers become conditioned to wait for sales, creating a customer base that rarely converts at full price. 

• This “discount addiction” means your existing customer base becomes less profitable over time, requiring increasingly aggressive promotions for repeat purchases. 

• Customers acquired through deep discounts have significantly lower customer lifetime value compared to those acquired through value-based marketing efforts.

Coupon abuse adds another cost layer. From unauthorized stacking to sharing codes beyond intended audiences, misuse destroys campaign profitability and skews customer acquisition metrics. 

Perhaps most damaging is the impact on brand perception. Consistent discounting creates expectations that full-price offerings are overpriced.

Shoppers are just not as excited about a 10% off Welcome discount as they used to be. And yet coupons feel like a necessary evil to drive opt-ins and conversions.

Here’s an example to bring this into picture for you. Imagine an eCommerce brand with $100 average order value spending $30 in sales and marketing costs per customer, plus offering 25% discounts. 

Their true customer acquisition cost isn’t $30. It’s $30 marketing spend plus $25 lost revenue, totaling $55. Factor in reduced repeat purchase likelihood, and the total cost of acquiring profitable customers easily exceeds $80.

CashBack allows brands to offer bigger incentives that boost list growth and conversion rates, all without taking the same financial hit as traditional coupon codes. Plus, it gives customers a choice in how they're rewarded for shopping at your store. It's a win-win for both brands and shoppers.

Cashback represents a fundamental shift in customer acquisition thinking. Instead of discounting products upfront, cashback positions rewards as value-added benefits that customers earn through purchase behavior. This maintains full profit margins during initial transactions while providing customer incentives.

CashBack is not a new concept. For many consumers, sites like eBates or Rakuten are what immediately come to mind when they hear this term. These sites offer a very small percentage of cash back (as low as 1%) after shopping at a variety of participating sites.

Here’s how cashback works: customers purchase at full price and receive cash rewards after purchase, typically as store credit with bonus value or prepaid Visa cards. This results in lower immediate acquisition costs with higher customer lifetime value.

The psychological impact is profound. While coupons train customers to expect discounts, cashback rewards encourage smart purchasing decisions. This positions your brand as generous without devaluing products. Customers perceive cashback as “earning” money rather than “needing” discounts.

For customer retention, cashback creates powerful repeat business incentives. When customers receive store credit with bonus value ($20 cashback becoming $25 store credit), they’re naturally motivated to return. This creates virtuous cycles where each transaction strengthens relationships rather than conditioning customers to wait for discounts.

Brands using Postscript’s CashBack feature report improved customer acquisition costs and significantly higher customer lifetime values. These programs integrate seamlessly with loyalty initiatives, creating compound benefits beyond single transactions.

The long-term CAC impact tells the real story. While coupons might generate cheaper customer acquisition in the short term, the total cost of acquiring profitable, repeat customers is significantly higher. 

Cashback creates sustainable models where acquisition costs decrease as customer lifetime values increase.

Consider this comparison of acquiring 1,000 new customers monthly. Assume:

• Product price = $100

• 20% coupon = $20 discount

• Net revenue per customer = $80

• CAC (Customer Acquisition Cost) = $40 (includes ad spend, etc.)

Using 20% off coupons, your initial customer acquisition cost might be $40 per customer. However, with lower repeat rates and lower order values, you’ll reduce profitability. That could mean many of these customers never return, and some might churn early, so the actual cost per profitable customer increases to $75.

The problem arises if many customers never order again, and others order with smaller basket sizes; you’re spreading your initial $40 CAC over very little margin.

Now, let’s assume instead of a discount, you offer $20 as cashback (post-purchase). Let’s assume:

• CAC = $35 (perhaps your creative costs are justified and perform better, or you offer the reward after purchase, reducing upfront friction).

• Revenue stays at $100 (no discount shown up front).

The benefits?

• Cashback can incentivize a second purchase.

• Repeat rate is higher → LTV goes up.

• Margins are preserved because the product was sold at full price, and the cashback is delayed and may not be fully redeemed.

You spend less upfront and gain higher LTV, resulting in a lower cost per profitable customer (estimated here as $25).

Customer preference data strongly favors cashback flexibility over upfront discounts. Cashback offers unmatched flexibility. Unlike coupons, which lock customers into specific products or timing, cashback rewards can be used as customers see fit.

Brands implementing cashback through platforms like Postscript report key benefits:

• Increased Email/SMS Sign-ups: Cashback programs naturally grow marketing databases with engaged, paying customers rather than discount-seekers.

• Boosted Welcome Series Revenue: Cashback-acquired customers show higher engagement with welcome communications, increasing automated campaign revenue.

• Improved Contribution Margin: Maintaining full-price transactions while offering equivalent value significantly improves per-transaction profitability.

The cashback process is elegantly simple with Postscript:

1. Trigger: UTM parameters identify eligible transactions for precise tracking across marketing channels.

2. Notification: Post-purchase text/email confirmation creates immediate positive reinforcement.

3. Redemption: Customers choose store gift cards (with bonus value) or prepaid Visa cards.

4. Delay: 30-day waiting periods reduce returns and create anticipation.

5. Delivery: Final reward delivery provides additional engagement opportunities.

This framework creates multiple customer touchpoints, turning single transactions into ongoing relationships that compound in value.

Strategic cashback during sales events amplifies results compared to traditional discounts, which increase your sales and marketing expenses.

Rather than blanket discounts eroding margins, cashback incentivizes specific behaviors such as larger orders, new customer acquisition, and repeat purchases.

During peak seasons like Black Friday, brands like Obvi can boost cashback percentages, offer tiered rewards, or create limited-time bonuses that create urgency without devaluing products. 

If you use 20% CashBack as an ongoing offer, testing out a higher CashBack reward during peak sale seasons is a great way to generate higher AOV and incentivize shoppers to buy and redeem even bigger rewards.

This allows competitive participation in sales cycles while maintaining healthy unit economics.

A/B testing validates cashback effectiveness for your specific business model. 

Replace existing coupon offers with equivalent cashback value across marketing channels. For example, test 15% cashback against 15% coupons to similar audience segments.

Then, you can:

• Implement across paid ads, email campaigns, SMS marketing, and social promotions. 

• Track customer acquisition cost, average order value, repeat purchase rates, customer lifetime value, and total marketing ROI. 

• Allow 90+ days for meaningful data since cashback benefits appear through repeat behavior.

While it’s hard to determine a “good customer acquisition cost,” you can always take steps to reduce customer acquisition costs.  

The evidence is clear: while coupons drive immediate conversions, they create unsustainable customer acquisition cost structures with increased sales expenses. 

Cashback can be added to your customer acquisition channels as it maintains profit margins while building valuable relationships. You can track your customer acquisition cost accurately using the complete formula—including both the expenses of marketing campaigns and discounting opportunity costs of marketing strategies.

Postscript excels as your SMS marketing platform for acquisition and retention. Built for Shopify merchants, it delivers the right offer to the right customer through sophisticated segmentation: strategic discounts for price-sensitive segments or cashback for value-conscious and potential customers.

Key features include:

• AI-powered optimization that automatically tests message variants

• SMS sales capabilities for human conversations

• Seamless cashback integration for sustainable growth.

Audit your current acquisition costs, test cashback against existing strategies, then leverage Postscript’s platform to optimize at scale and take your marketing funnel to the next level. 

The future of your acquisition team's efforts lies in a smarter reward structure: cashback powered by sophisticated SMS marketing.