Customer acquisition cost, abbreviated as CAC, refers to how much a company needs to pay to acquire a new customer. Knowing the costs involved with acquiring your customers is essential, if it’s too high, you’ll need to re-think some of your marketing strategies.
Did you know that customer acquisition can cost up to 7 times more than selling to existing customers? That should make it pretty darn clear that the money lies in the quick acquisition of customers and then retaining those customers.
To know what your CAC is, you’ll need to use the CAC formula. To do this, add up all the costs associated with gaining a client, such as marketing, salaries, software, outsourced services, and sales overhead, and then divide by the number of clients gained.
For example, if your company spends $1,000 on marketing in 1 month and acquires 500 new customers, the CAC is $1 since $1,000 divided by 500 equals $2 per customer.
Marketing Costs ÷ The Number of Customers Acquired
= Customer Acquisition Cost.
$1,000 ÷ 500 = $2
Now that you know how to calculate CAC, you should be able to improve it. After all, in the last six years, the cost of acquiring customers has increased by 60%!
So, what are some ways you can improve your CAC? The infographic below from GetVoIP shows us five innovative ways you can improve your CAC fairly easily. For example, you can establish an affiliate program to encourage folks to send new traffic to your website. Just establish an appropriate commission structure for your business and reward affiliates who bring you the greatest traffic!
You can also perform a retargeting strategy—encourage customers who have looked at your product to actually buy something. Casper, the mattress brand, used retargeting to get a 28% increase in ROAs and a 40% decrease in CPA.
These and other tips can be found below. By recognizing and improving your CAC, you will better know what new customers cost your brand, and you will be able to implement techniques to cut those costs if needed.