Customer Acquisition Cost (CAC)

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Customer Acquisition Cost (CAC) is a metric used to measure the cost associated with converting a customer to buy a brand’s product or service. This includes research, marketing and advertising costs incurred on convincing the customer. A significant metric used to ascertain the value of a customer to the brand, it also considers the return on investment after acquiring those customers.

CAC helps a company to fix the amount to be spent depending on the profitability of each customer i.e., to understand a customer’s worth to a company. Usually, a company’s cost of acquiring customers is said to increase as it matures and often decreases when the company reduces in size and geographical distribution of its offerings.  This metric is widely used by B2B software sales companies, startups, magazine brands, internet-based companies, etc.

To calculate the cost of acquiring a customer, divide the entire cost of sales and marketing over a given period of time with the number of customers acquired in that period. Companies improve their CAC values by using personalized content to convince the customer like sending follow up emails, sales calls or conducting free demos of the product/service or by opting other potentially more profitable channels.
The efforts linked with acquiring customers should not exceed the value of returns expected from them. Not to forget, after calculating the CAC of a company, compare it to Customer Lifetime Value (CLV) to get the exact worth of all efforts spent on acquiring those customers.

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