Customer acquisition cost (CAC) is a term that has increased in popularity with the rise of more targeted advertising and marketing campaigns that companies can easily track.
Determining your customer acquisition cost can help you understand if you’re spending more money to obtain clients than you should be.
Customer Acquisition Cost Formula
The CAC formula is really pretty straightforward. You just add up the expenses necessary to acquire the customer and divide by the number of acquired customers.
This can include software costs, marketing and sales costs, wages, outsourced services, and even higher level positions like management.
If you’d like to go for a simple example, let’s examine the following:
Marketing Costs / The Number of Customers Acquired = Customer Acquisition Cost
So, in this case, you could potentially imagine running a Facebook ads or pay per click campaign with the intent to acquire new customers.
Let’s say you’ve spent $500 in one month, and you got 10 new customers from those ads. Now, to determine CAC, you can calculate the ROI of the campaign as follows:
$500/10 = $50
Now that you know how to calculate CAC, you should know how to optimize it. Did you know that in the last six years, the cost of acquiring customers has increased by 60%?
Now, more than ever, it’s important to ensure that you’re keeping costs down when you’re marketing.
How Do You Improve Customer Acquisition Cost?
The infographic below from GetVoIP explains five unique ways to improve your CAC today. For example, boosting conversion rate optimization can be extremely effective when keeping customer acquisition costs down.
You can do this by optimizing high-performing content and testing to see which content is converting the best.
You can also implement a retargeting strategy. Once someone takes a look around your site, you can entice them to make a purchase.
Casper, the mattress brand, used retargeting to get a 28% increase in Return On Ad Spend (ROAS) and a 40% decrease in Cost Per Acquisition (CPA).
You can find these and more tips below. By understanding and optimizing your CAC, you’ll have a better handle on what your new customers cost your business, and you can put the strategies into place to improve this critical metric.
All images provided courtesy of the author under their own license rights.
Disclaimer: The views and opinions stated in this post are that of the author, and Return On Now may or may not agree with any or all of the commentary.