Customer Acquisition Costs

Customer Acquisition Cost (CAC) is a business metric that indicates the total cost of acquiring a new customer. This includes the costs of all marketing and sales activities, and any other expenses related to convincing a potential customer to buy a product or service. It’s an important indicator of the effectiveness of a company’s marketing efforts and the scalability of its business model.

To calculate the CAC, you divide the total costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent.

For example, if a company spent $500 on marketing in a year and acquired 50 customers in the same year, their CAC would be $500 / 50 = $10 per customer.

Companies generally aim to reduce their CAC, as a lower CAC means the company is achieving more with less investment. This can be done by improving marketing efficiency, optimizing sales processes, or increasing customer retention rates. It’s also important to consider the CAC in relation to the Lifetime Value (LTV) of a customer, as this can provide a clearer picture of the return on investment in customer acquisition.