Varos Glossary

Customer Acquisition Cost

What is CAC?

In marketing, the term "customer acquisition cost" (CAC) is used to indicate the average cost to acquire a new customer. As more businesses rely on web analytics to guide their choices, the usage of CAC marketing has grown in prominence. Companies may determine whether they are receiving a good return on their investment in expanding their client base by analyzing their CAC. This is true whether the company is spending money to have prospective consumers click on banners or on written and visual content.

Internet marketing strategies may be fine-tuned to focus on very precise subsets of consumers. In the past, companies used to have to "cast a wide net" with their advertising, which meant that they had to provide marketing material that would appeal to a large audience. It was hoped, at the very least, that this would increase business. Businesses sometimes saw insufficient returns on their ad spending using this method because of its generality.

  • However, the combination of CAC data with up-to-date, targeted campaigns allows you to not only zero in on certain subsets of individuals, but also learn how much you are spending to acquire and convert each new prospect.

How to calculate CAC

Simply said, CAC is determined by totaling all of your marketing and sales expenditures and dividing that by the total number of new consumers you've attracted. You should calculate Customer Acquisition Costs for a certain period of time, such as a year or a fiscal quarter.

Customer Acquisition Cost formula:

  • CAC = Sales + marketing expenses/number of customers

All sales and marketing costs need to be included in the numerator for a correct acquisition cost per customer. The cost to acquire a new client is skewed favorably if sales and marketing costs are ignored, whether on purpose or by mistake.

Strategies to reduce your cost per acquisition

To cut your cost of customer acquisition, you may do anything from gaining more customers for the same price, more customers for a little higher price, or fewer consumers for a considerably lower price.

What this implies is that if you decide to lay off your whole sales crew in the midst of the month, you may expect to see a big increase in CAB for that particular month. The company's closure is inevitable after this.

There are a lot of ways you can improve your client acquisition cost, but I'm just going to highlight top three:

1) Experimenting with different types of advertising

As of late, a company has access to hundreds, if not thousands, of potential candidates via a variety of online and offline recruiting channels. Still, most companies only hire two or three.

If that's the case, testing out and refining other routes may be a huge assist in bringing down your CAC.

2) Optimize the current channels you're using

The majority of the channels you interact with will have some kind of improvable aspect. Sales pitches, calls, and salespeople's compensation may all be fine-tuned with the use of digital marketing tools.

This is the most effective method for lowering a company's CAC.

All you need is data: in order to make improvements, you need to be able to track the changes you make and compare them to past results.

The use of a customer relationship management system (CRM) and other technological aids makes gathering this information much simpler.

3) Make your offer more valuable.

Customers' evaluations of your items' worth are very individual, therefore copying the features used by other businesses could not increase your sales. The success of your customer retention plan is on your ability to identify what motivates your target market to continue purchasing from you. The best way to achieve this goal is to stress the value of excellent customer service to everyone working for your company. Communicating with consumers through email or surveys may also help you learn more about their wants and requirements. Moreover, you may analyze data like client retention rates and more nuanced comments from reviews. If you find a connection between two things, you may be able to improve both by doing just one thing.

When paired with CLV, CAC is a potent metric for evaluating marketing success. You may calculate the short-term cost of acquiring a client and the long-term profit from each conversion.