What is Customer Acquisition Cost (CAC)?
Customer acquisition cost, or CAC, refers to the total sum for marketing and sales expenses the company spends to acquire a new customer. This metric reflects the future success of the enterprise because the less CAC, the more profitable the business is.
That’s why CAC is connected with the CLV (Customer Lifetime Value) and the resulting ROI (Return on Investment) – if the CAC is higher than ROI or CLV an enterprise isn’t considered profitable.
Customer acquisition cost includes the total of marketing and sales expenses, which include:
CAC is calculated in accordance with a certain period of time that can be on a monthly, quarterly, or annual basis. The formula looks as follows:
Sum total of all sales and marketing expenses \ Number of customers acquired
Using the same reporting period one is able to calculate a company’s CAC for this period with ease. For example, if a company earned $10,000 and had 100 new customers during the last month, the customer acquisition cost is $100.
It is important to have a low CAC so that a company can acquire new customers without investing a lot of money. There are some effective ways to reduce the enterprise’s CAC like:
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