How to Calculate the Customer Acquisition Cost

Customer Acquisition Cost (CAC) is the cost of acquiring a customer to purchase products. It works along with the Customer Lifetime Value (CLV). CAC is an important term for growth businesses.

If a company knows the cost of bringing a customer on, it can get a clear vision of its capital requirements in reaching a specific level of growth. It is the total spend on digital marketing and other direct costs which the company has deployed to attract customers.

It is a simple measure that can tell us a lot about the performance and return of investment. Once you have some parameters between which the company oscillates on a regular basis, it is easy to interpret. If the CAC is increasing, then it means that you are getting worse results flowing from the marketing efforts. It may be that a specific campaign does not resonate with the target audience or maybe it is becoming increasingly competitive to position the company through specific digital channels. It may be time to consider alternative channels, maybe a different messaging campaign.

What if the CAC is decreasing?

It might be a temporary advantage, a great campaign or a message that really draws the customer to your website, to your product.

In time such efficiencies tend to disappear, due to competitive pressures and of new similar products in the marketplace.

How to measure your CAC?

If you want to measure the actual cost of customer acquisition then you must know about its formula. The formula of the customer acquisition cost is as follows:

Customer Acquisition Cost =

Cost of sales + Cost of MarketingNew Customer AcquiredCost of sales + Cost of MarketingNew Customer Acquired

CAC is the sum of the cost of sales and marketing per new customer acquired.

What elements are considered or should be considered in CAC? Here is a list of potential elements which you may want to consider:

• The total cost that you are spending on digital marketing
• Total salaries that you are paying to your employees directly involved in sales and marketing activities, usually only those who have acquisition quotas
• The total cost that you are spending on creating content
• Publishing cost that you spent to publish your ads on TV…