Customer acquisition cost (CAC) is an important metric to track. It is valuable for measuring the effectiveness of your customer acquisition strategy and adjusting it over time. It is also a meaningful metric for potential investors, allowing them to gauge the scalability of your business.
There are a couple of methods to calculate CAC. A basic formula may be used to evaluate a specific campaign or strategy used to bring new customers to your business. Simply divide all the associated marketing costs (MC) and sales costs (SC) by the number of customers acquired (CA) to generate the customer acquisition cost (CAC).
CAC = (MC + SC) / CA
It’s important to also keep in mind the customer lifetime value (CLV). This takes into consideration whether your product is a one-time purchase, a purchase every 20 years or, perhaps, it’s a weekly purchase. This provides additional perspective when evaluating the CAC.
You should also consider the CAC and how it impacts your profit margins. If the CAC is too high, in relation to the cost of the product, its mark-up and other costs, you could potentially end up losing money. So, what a good CAC is for one company will not necessarily work for another.
Depending on the particular type of business, you may choose to consider some of the following costs when calculating CAC:
In this case, the formula would look like this:
CAC = ((CC+ SEO)/NC) + SP
As mentioned above, it’s important to monitor your CAC to ensure your company remains profitable and that you’re gaining the best results from your efforts. Businesses are always looking for ways to contain costs while still meeting their company goals. Here are a few ways to improve your customer acquisition costs while boosting results.
As you can see, it’s important to calculate and monitor your customer acquisition costs. It makes it easier to measure the effectiveness of your overall strategy, evaluate various acquisition methods and ensure long-term profitability. Plus, doing so makes it possible to determine the impact of each strategy on your total CAC, your profitability and your bottom line.