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What is Customer Acquisition Cost (CAC)?

Written by

Artem Goryushin

Reviewed by

Emmanuel O.

Fact checked by

Andrew Strassmore

Updated: May 1, 2023

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Elementary

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Definition

Customer Acquisition Cost (CAC) is the total amount of money spent to acquire one customer. This cost includes any marketing or sales expenses incurred in order to attract and convert new customers, such as advertising costs, discounts given to new customers, and other incentives.

Knowing your CAC is essential to understanding the health of your business; it helps you determine whether or not you are spending enough, or too much money on acquiring customers.

Why To Track CAC?

Why Should you Track CAC?

If you want to be profitable in the long run, understanding your CAC is essential. It helps you determine if you are spending too much money to acquire customers or not, and lets you compare customer acquisition expenses against customer lifetime value (LTV). Knowing your CAC can also help you prioritize different marketing strategies and tactics – by seeing which ones yield the best results for the least amount of money spent. By keeping an eye on your CAC, you can ensure that your business stays profitable, rather than overspending on acquiring new customers.

Additionally, tracking CAC allows you to monitor trends in sales performance and identify any potential weak spots where improvements need to be made. If it’s taking more time or resources than expected to acquire customers, you can then adjust your marketing budget accordingly.

How To Calculate CAC?

The formula for calculating CAC is relatively simple:

How to Calculate CAC?

Where total acquisition costs include all the expenses associated with acquiring customers, such as marketing and sales.

How to Reduce the CAC?

There are several ways to reduce customer acquisition costs, such as investing in online marketing, providing discounts and incentives for new customers, and improving your customer experience. Additionally, you can also use automation to streamline processes and make them more efficient. Automation can help reduce the amount of time and resources spent on manual tasks related to acquiring customers, freeing up employees’ time for more productive activities.

By reducing customer acquisition costs, you can ensure that your business is spending its money wisely and making the most out of each dollar spent on acquiring customers. This will ultimately improve your ROI (return on investment) and result in greater profits over time.

Conclusion

In conclusion, customer acquisition cost (CAC) is an important metric that helps businesses understand the health of their business and make informed decisions about how much money they should be spending to acquire new customers. By knowing your CAC, you can prioritize different marketing strategies and tactics, keep an eye on trends in sales performance, and reduce costs by automating certain processes. Ultimately, understanding and managing your CAC will help ensure that your business remains profitable for years to come.

Related articles:

What is ARPU? What is The Average Order Value (AOV)? What is Customer Lifetime Value (CLV)? What is Event Marketing and How it Works?

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