Customer Acquisition Cost (CAC) is a metric used to measure the cost required to acquire a new customer for your business. It takes into account total amount spent in sales and marketing and is divided by the number of customers acquired during a time period. The CAC can be measured monthly, quarterly, or yearly.
Free Online CAC Calculator
How to Use Customer Acquisition Cost (CAC)
The customer acquisition cost can be used to determine the cost to acquire a new customer. This can be powerful to gain a better understanding of how profitable each customer is to the company.
Let’s say all marketing and sales costs for a month is $5,000 and during that time period you gain 5 new customers. Using the CAC calculator, we see that the cost to acquire a new customer for that time period is $1,000.
By tracking the customer acquisition cost over time, companies can see if it holds steady or increases or decreases. As you dial in a new marketing strategy or advertising channel you might see your CAC increase in the beginning. When that strategy has been optimized, you should see the CAC decrease and eventually stabilize.
This is a good indicator of effective marketing and gives a benchmark if you notice it start to increase. Of course, you want to decrease your customer acquisition cost as much as possible to maximize your profit.
Your CAC Can Change Over Time
For example, a company may may invest $1,000 per month in SEO for a year. That SEO gradually increases the number of customers they get every month from 1 to 10. The first month may only get one customer, meaning the CAC is $1,000.
By month six, they may get 5 customers, which is a CAC of $200. By the end of the year, they get a consistent 10 new customers every month. Therefore, this translates to a customer acquisition cost of $100. In month thirteen, they stop paying for SEO but continue to get 10 customers, so the ongoing CAC is effectively $0.
Tracking the trend of your customer acquisition cost can give a lot of insight into the effectiveness of your marketing. Use that information to continuously improve your marketing and operations to become more profitable.
As you build your core business metrics, look to expand to other data points such as customer lifetime value (CLV).
Need some help gathering and interpreting your business metrics? Send us a message and we’ll see how we can help.
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