Calculate your customer acquisition cost
Use our free CAC calculator to calculate the cost of acquiring new customers for your business.
Enter your total sales and marketing spend, and the number of new customers acquired during this period. We'll calculate your CAC for you.
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Customer Acquisition Cost (CAC) refers to the average amount of money a business spends to acquire a new customer. It is a crucial metric for companies as it helps in understanding the effectiveness of their marketing and sales efforts.
It's a great metric to use alongside your conversion rate, which can help you understand why you may have a high CAC. If you're CAC is too high, then it's likely that certain sales or marketing strategies aren't working for your business.
To calculate CAC, you would typically divide the total costs associated with acquiring customers (such as marketing cost, sales team salaries, ad spend, etc.) by the number of customers acquired during a specific period.
Let's go over the CAC formula below:
Customer acquisition cost formula: (Cost of Sales + Cost of Marketing) / Number of New Customers.
For example, if a company spends $10,000 on marketing and sales activities in a month and acquires 100 new customers during that same period, the CAC would be $100 per customer ($10,000 ÷ 100 = $100).
As a general guideline, a CAC that is lower than the average lifetime value (LTV) of a customer is considered desirable. The LTV represents the total revenue a customer is expected to generate for the business over their entire relationship.
By ensuring that the CAC is lower than the LTV, a company can maintain profitability and achieve a positive return on investment (ROI) from their customer acquisition efforts.
Profitability Analysis: Understanding how much it costs to acquire a customer helps businesses determine the viability of their marketing and sales efforts. By comparing the CAC to the average revenue generated from each customer (or their lifetime value), companies can assess whether they are acquiring customers profitably.
Forecasting and Budgeting: Knowing the cost of acquiring customers allows businesses to forecast future expenses more accurately and set realistic budgets for marketing and sales activities. It helps prevent overspending on customer acquisition efforts and ensures that resources are allocated effectively to achieve growth targets.
Business Growth: Maintaining a healthy balance between CAC and customer lifetime value (LTV) is crucial for sustainable business growth. By optimizing CAC and LTV ratios, companies can scale their customer acquisition efforts while ensuring profitability and maximizing long-term revenue.
Resource Allocation: CAC provides insights into the effectiveness of different marketing channels and campaigns for a product or service. By analyzing CAC across various channels, businesses can allocate resources more efficiently, focusing on channels that deliver the best return on investment (ROI) and optimizing or eliminating underperforming ones.
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