How much does it cost your company to acquire a new customer?
Customers are invaluable to a business. But that doesn’t mean you can’t assign them a value.
For marketers to give an accurate account of the return on their company’s marketing investment, it’s crucial for them to know how to calculate a number of metrics to know how well their department is performing.
In this blog we’re going to explain how to work out the Customer Acquisition Cost – the price you pay to acquire a new customer.
How to calculate Customer Acquisition Cost (CAC)
CAC = Sales and Marketing cost ÷ new customers
Sales and Marketing cost = Programme and advertising spend + salaries + commissions and bonuses + overhead, within a month, quarter or year New customers = Number of new customers, within a month, quarter or year
Let’s look at an example
How much did we pay to get Target A to click on our website, download our whitepaper, read our emails and eventually become a client?
Sales and Marketing cost for the month = £300,000
New customers in a month = 30
CAC = £300,000 ÷ 30 = £10,000 per customer
Why this is crucial
Here’s a metric that will prick your boss’s ears up. The CAC gives you solid financial information that shows, on average, how much it costs to acquire a new customer.
Ideally, you want to keep a low CAC. This means you’re spending fewer resources on creating new customers, and indicates that you’re running a tight ship.
An increase in CAC would mean you’re spending comparatively more for each new customer. This might imply there’s a problem with your Sales or Marketing efficiency.
For more on the marketing metrics that affect your company’s bottom line, download Don’t Sweat The Small Stuff: Six Marketing Metrics Your Boss Actually Cares About