Growing in popularity with the emergence of Internet companies and web-based marketing, customer acquisition cost (CAC) is a rather new metric that allows for marketing and advertising spends to be more closely tracked.
Traditionally, businesses had to use a shotgun-style advertising approach and find ways to track customers through the decision-making process.
Now, companies can engage in highly targeted marketing campaigns that can track consumers through each point of the buyer’s journey, from visitor to customer.
CAC is the metric used to determine the average total cost you spend to acquire a new customer. It’s that simple.
Determining Your Customer Acquisition Cost
To calculate your CAC, start by taking the total sales and marketing spend for a particular period and divide by the number of new customers for that time. It can be a month, a quarter or a year.
Sales and marketing costs can include program and advertising spend, salaries, commissions and bonuses, and even any overhead for that specific period.
So for example, if your sales and marketing costs for the year are $300,000, and you gained 30 new customers in the year, your CAC equals $10,000 per customer.
What This Means
This metric is important because it illustrates how much you are spending to get a new customer. The lower the average CAC, the better off you will be.
An increase to your CAC means that you’re spending comparatively more for each new customer, which can be a big red flag to how efficient (or inefficient) your sales and marketing are.