Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is the total cost incurred by a business to acquire a single customer or user. It is one of the most important metrics for businesses that rely on acquiring and building relationships with customers.

CAC is calculated by taking the total amount of money spent to acquire new customers (marketing, advertising, and sales expenses) and dividing it by the total number of customers acquired. An example of CAC is the total amount spent on advertising and promotional activities divided by the number of customers acquired from the activities.

Customer acquisition costs can be used to gauge the effectiveness of marketing and advertising campaigns as well as the cost of customer acquisition. Companies can compare their CAC to their competitors’ to better understand their own performance. Additionally, the CAC calculation can be used to evaluate the cost effectiveness of different marketing strategies and to determine how much money should be spent and allocated for marketing activities.

Finally, CAC is a useful metric when considering customer lifetime value (LTV) as it allows for an understanding of how long it takes for a business to recoup its investments in customer acquisition.

Let’s assume a business spends a total of $10,000 on advertising and promotional activities to acquire new customers during a month. If the business was able to acquire 100 customers from those activities, then the CAC is calculated as $10,000/100 = $100. This would be the cost per customer acquired for that month.

Using this CAC, the business can evaluate its own customer acquisition costs as well as compare it to other businesses in the same industry to learn about where to focus its marketing efforts. Additionally, by understanding its own CAC, the business can more accurately determine the lifetime value (LTV) of its customers, and determine if the investment in acquiring new customers is worth the return it will bring in over time.