Since customer acquisition and retention is one of the most crucial elements of business success today, it pays (literally) to analyse your costs with a view to maximising budgets and consistently increasing acquisition. Calculating customer acquisition costs speeds the whole process up and dramatically enhances your chances of business longevity.
Customer acquisition cost (CAC) is a vital business metric. It is the calculated total cost (in terms of sales and marketing) to attract a new customer, over a specified period of time. This can help you to pinpoint exactly which resources are needed for future customer acquisition, fine-tune processes and allocate budgets wisely. In short, by using this metric you are better placed to secure the ongoing growth of your business.
Below we will take a look at the benefits of calculating CAC, what it entails and how you can do it:
By calculating your customer acquisition cost, you will also ascertain your true profit margins. This is because you are now able to weigh up what it costs to acquire a customer against the number of customers actually acquired. Your goal will of course be to bring down the CAC to make the most of your sales and marketing budgets, at the same time as boosting your overall profits.
To do this, it is necessary to examine your overheads, from marketing activities (such as advertising, content creation and publishing) to employee salaries, bonuses and commissions. You will also need to take a look at technical, production and inventory expenses, for example.
By calculating your customer acquisition costs, on a practical level you should see the following benefits to your daily operations:
It also worth noting that when your new customers are happy, they too can play a part in boosting new customer acquisition by leaving positive reviews and verbally spreading the word about your brand. The obvious benefit here is that it won’t dent your budget by even a cent.
As mentioned above, it is important to specify a time period so that you can effectively measure your CAC. So step one is to decide upon a time frame, whether it is a month, a quarter or a full year.
The next step is to sum up the cost of all your sales and marketing expenses, and the final step is to divide this by the total number of customers you gained in that timeframe. What you are left with is the total approximate cost of acquiring a customer.
The great thing about properly developing this metric is that it works well in conjunction with other important metrics. These then come together to paint a much more accurate picture of what is going on with your sales and marketing activities.
It is probably safe to assume that not every business owner will want to take the long route to working out the cost of customer acquisition. Fortunately, there is a short and convenient route at your disposal: our cost per customer acquisition calculator takes the hard work out of it.
We have developed a useful customer acquisition cost calculator that you can download for free. We hope you are able to make the most of this customer acquisition tool, and feel free to get in touch if you have any questions – we will be happy to help.