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 of 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 find out the cost of attracting a user, that is, first converting it into a lead, and then the cost of that lead finally being 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 continues to be and will be one of the most effective forms of acquisition.

What is the CAC used for?

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

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

How is the cost of customer acquisition calculated?

To be able 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 customers you were able to acquire in the period of time you are making the account.

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

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

The CLV or LTV is a metric that tells us how valuable a client is for a company , since it expresses all the value that client will give 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 their service, they will do so for a minimum period, thus earning a profit for a few months or years.

When the CAC is less than the CLV, a business performs 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 the 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, they can take into account the following:

  • Improve your website for search engines (SEO). Review with the help of Analytics and Search Console the pages that have the most visits and study what you do well to replicate it in the ones that interest you the most.
  • Improve the user experience and follow up 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 else you can.
Apply these recommendations, I assure you that with these changes you will make your emails have a better impact. For more information on this topic, at MHA you will find the solution you need .

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