Customer acquisition cost (CAC) is an indicator that can be used to check the performance of marketing campaigns. It shows how much the company spends on average to win a customer.
As part of its direct or digital marketing campaigns, a company needs to know the average cost of generating a lead and converting it into a customer, as it’s crucial for analyzing the “Acquisition” stage of the AARRR framework. There are a number of indicators that can be used to do this, including CAC.
Knowing the CAC is therefore an excellent way to find out whether the strategy implemented by the brand is effective and profitable. Once the calculations have been made, the company can adjust its campaign, choose the most effective channels and thus have a positive impact on its return on investment (ROI).
Customer acquisition cost is calculated using the following formula: total cost of marketing investment / number of customers acquired = CAC.
For example, if you have spent a total of $6,000 (marketing and sales expenses) and acquired 150 customers, the acquisition cost for each customer is the following: $6,000 / 150 = $40.
If you want to earn a profit in the future, you'll need to ensure that your margin exceeds the CAC.
To refine this calculation, it's also worth bearing in mind the notion of customer lifetime value (LTV). This indicator measures the amount of profit generated by a customer over the entire duration of their relationship with the company.
The cost of acquisition should be considered by the company as an indicator of the investment required to acquire new customers. For this reason, it’s also advantageous for the business to understand churn, as high churn rates can render the investment in acquiring new customers less effective and sustainable. It should be noted that acquisition costs will always be higher than loyalty costs.
For digital marketing campaigns, the CAC calculation can also be replaced or supplemented by the return-on-ad-spend (ROAS) calculation.
ROAS is an excellent way of checking the profitability of an online campaign. It enables us to put the cost of advertising expenditure into perspective with the number of customers obtained thanks to it.
As mentioned above, monitoring CAC is essential to ensure that efforts to acquire new customers are profitable. The company's financial health is at stake.
