Customer Acquisition Cost or CAC: What is it and how to calculate it?

CAC refers to Customer Acquisition Cost and this in turn means the cost involved in obtaining a new customer, that is, everything they must spend on search engine advertising, content generation (text, audio, video), tools, salaries, etc.

The CAC is essential to know the ROI or return on investment in marketing efforts and with sufficient data, to know if it is prudent to inject more budget, reduce it or be more specific for where it is going.

The CAC helps to know the cost of attracting a user, that is, first converting it into a lead and, then, the cost involved in making that lead finally a user, that is, a sale.

The ideal for every company is to reduce the CAC as much as possible. This can be achieved by generating correct prospecting , quality products and outstanding customer service, since word of mouth recommendation continues to be and will be one of the most effective forms of acquisition.

What is the CAC for?

When a business knows specifically how much it costs them to obtain a new customer, they can:

• Plan your strategies better and be aware that perhaps the route you offer the user is not the correct one.
• Know which resources give the best results, improving them and creating more.
• Know the return on investment specifically.
• Dedicate time, resources and effort to what works.
• Know how to retain current customers.
• In short, reduce costs and maximize profit.

How is the cost of customer acquisition calculated?

In order to know the CAC, it is a simple formula. You must add the total spent on marketing and sales and divide it by the number of clients you were able to acquire in the period of time that you are doing the account.

Here, let's remember that those in charge of creating the customer acquisition account must consider everything spent, including:

• Salaries.
• Logistics .
• Attraction events.
• Campaigns on social networks .
• Search engine campaigns .
• Offline campaigns.
• Travel expenses.
• Tools, software.
• Increased authority of your page.
• Etc.

So, if, for example, we want to know the CAC for a year and the marketing and sales expenses were 300,000 pesos, but we were able to acquire 2000 new customers, we would do the following:

300,000 / 2000 = 150

The CAC is 150 pesos spent to be able to have a new buyer.

Customer Lifetime Value (LTV) and CAC

CLV or LTV is a metric that tells us how valuable a customer is to a company , as it expresses all the value that customer will provide while maintaining a relationship with it.

So, let's think about this aspect in paid programs or services like Netflix. Netflix's CAC is very high in advertising and the generation of new content, however, its analysts project that when a person contracts its service, they will do so for a minimum period, thus generating a profit for a few months or years.

When CAC is less than CLV, a business is performing well.

Likewise, if we use Amazon as an example, LTV will refer to knowing the average value of the purchases a user makes and how often they are made.

How to reduce CAC as much as possible?

As mentioned, the goal is to minimize the cost of customer acquisition and make them spend as much as possible in our company. To achieve this, you can take the following into account:

• Improve your website for search engines (SEO). Check with the help of Analytics and Search Console the pages that have the most visits and study what you do well to replicate it on the ones that interest you most.
• Improve user experience and track users with abandoned carts .
• Learn to listen to suggestions and add value to your products and services.
• Analyze the competition, their CTAs, their structure so that you can apply it in an improved way to your site.
• Automate the process of capturing leads, lead nurturing and everything you can.