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Customer acquisition cost, or CAC for short, is the total cost your business accrues when getting a customer from start to finish. This number can help business owners and decision makers make informed decisions on how to alter pricing, marketing efforts, marketing success, and other important metrics for running a successful business.
CAC is able to be calculated in just a few steps. It requires knowing the cost of marketing, the cost of sales, and the number of new customers.
To get the CAC you do CAC = (Marketing Cost + Sales Cost) / Customer Count.
It is important that you understand what some terms relating to CAC mean.
A business sells drinks online. They spent $500 in marketing expenses in one month. In that same month they had 8 customers who each bought 1 bottle. Each bottle was $2 to make so the cost of sales was $16. To calculate the CAC you add 500 and 16 to get 516 then divide it by 8 to get a CAC of $64.50.
A power washing company got 10 customers last month. Their marketing cost was $350 and their total cost of sales was $150. To calculate their CAC you add 350 and 150 to get 500 then divide it by 10 for a CAC of $50.
Not every business will look at their marketing costs and sales costs to ensure they are profitable and within a healthy range. That makes it important to know your CAC so you manage and actively work on ensuring profitability.
No business's CAC will ever be the same. But in general, a CAC is good when it is less than a third of your customer lifetime value. So if your customer lifetime value is $30, a good CAC is $10 or less.
No, it is impossible for a business to have a negative CAC. It can technically only be as low as zero if you have zero customers despite having money spent on marketing.
Create Date: July 10, 2024
Last Modified Date: July 10, 2024
