Customer acquisition cost (CAC)

Customer Acquisition Cost (CAC) refers to the expenditures and resources involved in acquiring a new client.

CAC is a vital business metric frequently used in conjunction with the Customer Lifetime Value (CLV) metric to determine how much value a new customer generates.

As firms employ web analytics to make data-driven choices, the use of CAC has grown in popularity. Companies can measure their CAC to see whether they're receiving their money's worth when they invest in developing their clientele.

How to calculate CAC

To calculate CAC, sum up the expenses of getting new customers (the amount you've spent on marketing) and divide that number by the total customers you've gained. This is usually calculated for a set period, such as a year or a fiscal quarter.

Customer Acquisition Cost = Marketing expense / Number of new customers

For example, if a business spends N100,000 on marketing in a year and gains 1,000 new customers, the CAC is N100,000 divided by 1,000 customers, which equals N100 per customer.

What can CAC do for you?

CAC is a very effective tool for calculating your marketing ROI when coupled with CLV. You receive a quantified appraisal of what each consumer costs in the short term, and you get a picture of how much money you generate from each of them in the long run.

You can utilize captivating marketing campaigns, well-designed websites, and audience engagement tools to convert more consumers and decrease your CAC with some free marketing tools.

Factors affecting CAC

When calculating CAC, it's crucial to keep in mind the context in which the figures were obtained. For example, if you're just starting in a new market, your CAC may be higher since setting up a business in a new location frequently requires enormous upfront expenditure.

Additionally, CACs may be much higher for emerging businesses that want to recruit marketing staff or older companies that seek to supplement their current marketing efforts with additional people or technology.