COST OF CUSTOMER ACQUISITION. CAC

Accelerate your business with these expert tips on "Customer Cost of Acquisition". Analyse and discover this TIP!

WHAT IS CAC?

It is a metric that indicates how much money it has cost us to attract a NEW customer from the middle. (note, this is important) during the period under review. It is a comparative metrics i.e, only has value in comparison with other periods (this month it has cost us 2€ more to attract each customer) or with other similar business models (my competitor's tooth acquisition cost is €4 and mine is €3.5). Customer Acquisition Cost (CAC) is a metric used to assess the cost of acquiring a new customer for a company. The CAC refers to the total cost of marketing and sales divided by the number of new customers acquired during a specific time period.

WHY IS IT IMPORTANT TO CALCULATE THE CAC?

Because it allows us to know how much money it costs to attract a new customer, and therefore gives us an idea of the evolution of the investment we are making in customer acquisition... and it is key when set against the next one, the customer lifetime value. The CAC calculation is important because it allows companies to determine the real cost of acquiring and retaining customers. If the CAC is too high, it may be a sign that the company is investing too much in marketing and sales without sufficient return on investment. If the CAC is low, the company can justify the cost of acquiring and retaining customers.

HOW IS THE CAC CALCULATED?

We must add up the cost of all the efforts invested in attracting new customers (sales force, advertising, publicity, advertisements, etc.) and divide the figure obtained by the new customers obtained during the month (or chosen period). It is important that they are new customers that we have not yet monetised.

To calculate the CAC, you should follow the steps below:

1. Determine the total cost of marketing and sales: This includes the cost of advertising, social media marketing, events, email marketing, sales staff, etc.
2. Determine the number of new customers acquired: This can be over a specific period of time, such as a month or a quarter.
3. Calculate the CAC: Divide the total cost of marketing and sales by the number of new customers acquired.

CAC = Total Cost of Marketing and Sales / Number of New Customers Acquired

Once the CAC has been calculated, a company can use this information to make informed marketing and sales budget decisions. It can also use the CAC to compare customer acquisition costs between different marketing and sales channels, which can help identify the most effective and efficient channels. In a nutshell, CAC is an important metric for companies because it allows them to determine the true cost of acquiring and retaining customers. By understanding and maximising CCS, companies can improve the efficiency and profitability of their business.

Practical examples of CCS calculation

Below are some practical examples of how to calculate CAC in different types of companies:

SaaS (Software as a Service) company:

Suppose a SaaS company wants to calculate its CAC. The company has spent a total of $50,000 on marketing and sales in the last year and has acquired 100 new customers in the same period. The ACC calculation would be:

CAC = $50,000 / 100 new customers = $500

This means that the company has spent $500 to acquire each new customer.

E-commerce company:

Suppose an e-commerce company wants to calculate its CAC. The company has spent $20,000 on marketing and sales in the last month and has acquired 500 new customers in the same period. The ACC calculation would be:

CAC = $20,000 / 500 new customers = $40

This means that the company has spent $40 to acquire each new customer.

Service company:

Suppose a service company wants to calculate its CAC. The company has spent a total of $30,000 on marketing and sales in the last quarter and has acquired 50 new customers in the same period. The ACC calculation would be:

CAC = $30,000 / 50 new customers = $600

This means that the company has spent $600 to acquire each new customer. In a nutshell, The calculation of the CAC may vary according to the type of business, but is generally based on the total cost of marketing and sales divided by the number of new customers acquired. By understanding CAC, companies can determine the true cost of acquiring and retaining customers and make informed decisions about their marketing and sales budget.

Case study on calculating cac in a new company

The following is a case study for calculating the CCS in a new company:

Suppose an entrepreneur has launched a new company selling electronic products online. The company has invested a total of $20,000 in marketing and sales in the last month and has acquired 100 new customers in the same period. The ACC calculation would be:

CAC = Total Cost of Marketing and Sales / Number of New Customers Acquired

CAC = $20,000 / 100 new customers = $200

This means that the company has spent $200 to acquire each new customer. To maximise the profitability of the business, the entrepreneur can focus on reducing CAC while increasing the average purchase value of a customer and the lifetime value of the customer. For example, the entrepreneur can focus on improving the quality of customer service, personalising the customer experience and developing a long-term customer relationship. It can also focus on retaining existing customers and building loyalty through loyalty programmes and exclusive offers. By understanding and maximising CCS, the entrepreneur can increase the profitability and long-term sustainability of his business. In addition, can use CAC to compare customer acquisition costs between different marketing and sales channels, which can help identify the most effective and efficient channels.