Customer Acquisition Cost, also called CAC, is the actual spent amount to acquire a customer for the business, usually associated with the direct expenses only.
Customer Acquisition Cost and How to Keep it at a Minimum
The bitter truth is: leads don’t come on their own. You have to invest time and money to get those leads rolling and converting into customers. And this is exactly where customer acquisition cost (CAC) comes into play.
Customer acquisition cost is the amount you invest in getting a customer. More questions popping into your mind? Like, what is included in customer acquisition costs, how to calculate customer acquisition costs, and so on.
Customer Acquisition Cost
Customer acquisition cost is the approximate cost of getting a new customer. In other words, it’s all the marketing and sales expenditure involved in converting a prospect into a customer that buys from you.
And, what is included in customer acquisition costs? It’s all the expenditure or investment you make, including the tools you use, any advertising costs, marketers’ salary, salespeople’s salary, and so on.
On the whole, your cost per customer acquisition needs to be low. Let’s see why is that important.
Why is Customer Acquisition Cost Important?
Are you putting in too much effort in getting leads to convert? Or, are you spending time on channels that don’t get you many leads? You can answer all this and more by knowing your customer acquisition cost.
It can also tell you if what you’re spending is delivering enough, as in how much a customer is spending back. For instance, our respondents can tell you which customer acquisition channels don’t reap much and which pay off well.
Which Channels Offer the Lowest Customer Acquisition Cost?
In short, your CAC can tell you the value of a customer. For SaaS companies, this helps analyze their business’s scalability.
Not to mention, you can determine your costs just by looking at the difference between how much money you are investing and how much you are getting from customers. That’s how important CAC is.
How Do You Calculate CAC?
Calculating customer acquisition cost is simple. But you can always only get an approximate value since tracking the cost of getting each customer is a bit too much work.
Here’s the formula to get an approximate CAC:
Cost of marketing + Cost of sales/New customers acquired
In short, divide the sum of all your investment for getting customers by the new customers you got in a select period and you’ll get your CAC.
Say, you’ve spent $200 in a year of marketing and sales. This investment gets you 15 new customers. So in this case: 200/20 means your CAC is 10.