Glossary definition: Customer Acquisition Cost (CAC)

Customer acquisition cost (CAC) is a metric that measures the total amount of money spent on acquiring new customers. It is calculated by dividing marketing expenses by the number of customers acquired in the period those expenses were incurred.

Customer Acquisition Cost (CAC) is the total amount you spend to acquire a customer, including:

If you're calculating CAC for your SaaS company, make sure to include everything that relates to how much you pay or invest in order to get a new customer—even if it's not directly related to marketing!

Marketing expenses are any money spent to acquire new customers. These include online ads, print ads, referral commissions and more.

Marketing costs can be one-time or recurring; they may also have fixed or variable costs.

This is the most obvious expense when it comes to customer acquisition. It includes the cost of your time, but also the costs of hiring staff, freelancers or contractors and outsourcing work if you're unable to do it yourself.

This can include the costs of setting up a CRM, marketing automation platform, and website. Additionally, it could also include the cost of hiring developers to build your website or even developing your own app. It also includes any SaaS licences or tools related to customer acquisition.

Customer acquisition costs include all of the money you spend to get a new customer. This can be advertising, marketing expenses, labor, technology costs and other investments that go into acquiring customers.

The CAC is determined by calculating the total cost of all your marketing activities (including employees' salaries) divided by your number of new customers acquired during a specific time period.

CAC = Costs of sales and marketing / Number of New Customers Acquired in Period

Given the cost of acquiring customers, it is critical to understand how much you are paying for each channel. The best way to do this is by calculating the customer acquisition cost (CAC) for each channel.

The formula for CAC per channel is:

For example, if your company sold spent $5 million on marketing on Facebook to get 100k new customers, then your CAC would be $5 million divided by 100k — $50 per customer.

A CAC calculation is a great way to understand where you get the highest value for your investment and where you should focus your budget in future campaigns.

To calculate the CAC for your business, take a look at your marketing and sales expenses. Divide the total amount of money spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent.

It's important to be able to gauge whether your customer acquisition cost is too high or low. You can do this by answering the following questions:

First of all you should start by creating a customer journey map, which will help you optimize your marketing strategy and see where you can target to bring more leads through the funnel.

Here are some tips on how to do that:

To increase the number of customers paying you, you should focus on acquiring those who are more likely to pay. This includes targeting your ideal customer with marketing campaigns and refining your product so it’s more appealing to users who will pay for it.

You can also decrease your CAC by using a customer acquisition cost framework to help guide decisions related to when and where you should spend their budget. There are various metrics you can use, such as lifetime value and average order size (AOS). This allows you to quickly determine whether their strategy is working well enough.

Paid acquisition is a great way to acquire customers. It's easy and straightforward, but can be expensive if you don't know how to do it well.

Organic acquisition is when you get new customers by making your product visible in search engines like Google and Bing.

Referral acquisition is another good way to get new customers, because people tend not to make referrals for things they don't like or trust! Referral networks can be very powerful when done properly.

Affiliate programs are great for acquiring new users at no cost (or minimal cost), but only work with certain types of products/services and companies that have affiliates on board already.

Discount and coupon campaigns are also effective ways to generate new business.

Customer acquisition frameworks are a way to structure your customer acquisition process. They help you to identify the right customer acquisition channels for your business, and by doing so, they reduce the risk of wasting time on activities that are not working.

The some popular frameworks are:

Paid acquisition is the process of paying for customers through advertising. Paid acquisition can be done through social media ads, paid search, display advertising and other channels. Typically this is done by a third-party advertising platform since it's important to have a good understanding of who your target market is and how they use the internet.

This method of customer acquisition can be very effective because you're able to reach new people who have never heard about your business before. Paid acquisition campaigns will typically have an ROI (return on investment) attached to them so that you know exactly what kind of return on investment your campaign will give you over time.

Customer acquisition costs are an important metric to measure the health of your business. They tell you how much it costs to acquire new customers and give you a basis for comparing different channels by knowing how much they cost per lead or purchase made. This information can help with decision-making in terms of marketing budgets, since it lets you prioritize which channels work best for acquiring new customers at the lowest cost possible.