What is customer acquisition cost (CAC)?
What is customer acquisition cost (CAC)?
CAC is the total expense incurred to gain a new customer. This figure takes into account all of the costs associated with the marketing and sales processes, including ad spend, employee salaries, and software costs.
An important metric for marketers, CAC costs are often linked to lifetime value (LTV). Together, these figures are used to monitor outgoing spend vs. incoming customer revenue. CAC and LTV combined also help marketers to predict future patterns and make plans based on these.
How is CAC calculated?
To calculate CAC, the total marketing cost for acquired customers is divided by the total number of customers acquired.
When calculating CAC, it’s important to start by defining the time period you’re focusing on, for example a quarter or a year. Keeping this time period consistent will allow you to compare and contrast past and present CAC.
)
If you’re calculating CAC per quarter, and Q1 sees you spending $300,000 on total marketing costs while acquiring 500 new customers, your CAC is $600 ($300,000 divided by 500).
Why is CAC important?
CAC is an important way for marketers to ensure that the costs of acquiring customers do not outpace the revenues generated by these customers. For example, spending $300 to acquire a new customer with an expected LTV of $200 would result in a loss.
A healthy outlook for a marketer is a reduction in CAC, meaning that new customers are coming on board without as much of a reliance on expensive business functions—ideally, acquisition is not wholly or greatly reliant on sales and marketing spend. Efforts to gain new customers organically (for example, through quality blog content) can be focused on to reduce spend in these areas. Customer success teams generating success stories are also key to organic and “word of mouth” customer acquisition.
Adjust and CAC
Determining the best way to improve (decrease) CAC can be challenging. Using Adjust’s Datascape solution, you’re viewing your app’s latest data—it’s always up-to-date, comprehensive, and enables quick and effective evaluation of important metrics and key performance indicators (KPIs). At a glance, you can see user acquisition (UA), allowing you to calculate CAC. You can also see LTV, allowing a fuller picture of how acquired customers are spending.
Adjust supports your efforts to lower your CAC. Focus on tried and tested marketing strategies such as conversion rate optimization and retargeting. Converting valuable users to paying customers lowers your CAC and brings more revenue to your business.
Never miss a resource. Subscribe to our newsletter.
