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Business Analysis Metrics: Customer Acquisition Cost (CAC)

In this blog, we discuss the following:

As a business leader, your priority is making sure profits are high and the expenses don’t exceed more than you can afford to spend. If it costs you more to get a customer than it brings you revenue, you’re making a fundamental loss. You can’t have a business that continuously buys customers in order to purchase as that will eventually bring your business down. In order to avoid this unfortunate situation, the customer acquisition strategy needs to be optimized. The customer acquisition cost (CAC) is a key metric in any business, to know if you will be profitable or not.

Customer Acquisition Costs

There is a lot that goes into this key metric. The following is a list (but not limited to) to keep in mind when determining if the costs may be too much in order to acquire a sale.

  • Distribution costs

  • Website-related costs

  • Sales & marketing department salaries (after all, they are here to acquire customers)

  • Social media costs

  • Advertising

  • Loyalty and brand-related expenses

  • Channel manager fees

Once a well-thought-out marketing plan is set in place, it’s important to reduce CAC as much as possible. Ultimately, it is in the company’s favor to lower all these expenses. At the same time, strategically obtain loyal customers and achieve a high net promoter score. Reducing the CAC signifies that the business is spending money more efficiently and should conclusively see greater returns in its total profit. If the inbound marketing procedures are functioning properly then it is not necessary to sacrifice more resources to ad spend that does not bring in leads. With that in mind - it’s not all solely marketing, we cannot forget about making sure the customer success department is also doing what they do best. Which is retaining and further growing the relationships that are already present to, again, increase the net promoter score. Get our net promoter score tool today for free!

How to Calculate CAC?

If your business is planning to lower its CAC, first go download Financial GPS’s free customer acquisition cost template to save time today!

To calculate the customer acquisition cost, use the formula:

CAC = Total Cost of Sales & Marketing ÷ Number of Customers Acquired

So ask yourself, does the business have high marketing expenses? How beneficial is the marketing strategy in order to land sales? Am I losing or profiting? If you’re unsure of the answer to these questions, head over to our free CAC tool and other free key metric templates to help strategize your business’s growth and forecast for a better outcome. Knowing your cost of customer acquisition can turn your business around and save it.


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