Customer Acquisition Cost

What is Customer Acquisition Cost (CAC)?

It’s how much money is spent on sales and marketing to attract a new customer.

Formula: (sales spend + marketing spend) / number of new clients = CAC

Items to include in spend:

  • Outsourced creative projects - graphic design, copywriting etc.

  • Travel expenses - in person meetings, hotels, dinners and so on.

  • Tech stack - sales and marketing teams use a lot of automation tools, include them.

  • Commission paid on closed won deals

  • Ad/PR spend

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Why is CAC important:

It indicates the health of your sales and marketing teams. If you’re not spending enough on sales and marketing you may be missing out on new customers who are ready for a solution like yours. In turn, if your sales and marketing spend is too high, it will be difficult to turn a profit.

As a standalone metric it doesn’t tell you a whole ton about your business but it needs to be accurate because you’ll use it in comparison with your LTV and Magic Number to gain insight into where to spend or cut resources.

How to improve CAC:

  • Take note of your highest converting channels and focus on those.

  • A/B test everything to get your team operating most efficiently.

  • Cut “nice-to-have” tools that don’t make a big impact on lead conversion

  • Be easy to buy from - Consider combining steps of the process and

  • Only demoing to qualified buyers.

Limitations:

If you have a sales cycle longer than 30 days or acquire most clients through a freemium model, the CAC will not be accurate when analyzing month to month.

To combat this, we suggest analyzing a rolling 3 or 6 month average of your monthly CAC.

KPIsBriana Radomsky