Business success depends on acquiring new customers and retaining existing ones. In order to plan your budget well, you’ll need to know how much it costs you to acquire a new customer. This post teaches you how to determine these costs using the cost per customer acquisition calculator.
The CAC is a hugely important figure for marketers, as it shows how much you’re spending to acquire new customers. By understanding this figure, you can pinpoint which areas need improvement, and where you should be focusing your marketing efforts. Heres is what you need to know about cost per customer acquisition calculator:
What is customer acquisition cost?
Every customer that you get to buy your product or pay for a membership is subject to a cost. This is your customer acquisition expense – the cost to acquire customers.
These new customers are cost-effective because they include marketing expenses such as advertising, salaries, commissions, bonuses, and other sales-related expenses.
Lower acquisition costs mean more profit margin.
How to calculate CAC
To calculate the customer acquistion cost of your company, simply divide the cost of sales and marketing by the number of new customers acquired.
A beauty company spends $3,000 to create a campaign that brings in 114 new customers.
Example
$3,000/114 = $26.32 to obtain a new customer
Why should you calculate and track your customer acquisition cost?
It is important to understand the cost of acquiring a new customer in order to make financial decisions that will help your business move forward.
Every business knows that if a product doesn’t make money, it won’t be sustainable. To determine if a product is profitable, you need to calculate and monitor your customer acquisition costs.
It can also reveal if you are spending too much to attract new customers. Sometimes it is not related to the product but how it is being marketed. If your product is not converting profitably, you should examine your marketing strategy.
Cost Per Customer Acquisition Calculator
This is a tool that businesses use to determine the cost of acquiring new customers.
The calculator takes into account a variety of factors, including advertising and marketing expenses, the cost of sales, and the cost of customer service.
By inputting these and other factors, the calculator can provide a business with an estimate of the cost of acquiring new customers.
How does customer acquisition cost (CAC) work?
There are many different ways to measure the success of your business.
But listen, customer acquisition cost (from here, ‘CAC,’ because let’s face it, it’s a mouthful…) is one of the most critical metrics out there.
The bottom line is…
If you don’t understand customer acquisition cost, your business will fail.
Make it work for you… And you’ll be on a fast-track to sales success.
The CAC calculator can help you determine a rough number for your business’s customer acquisition cost.
If you’d like to learn how to do this for yourself, keep scrolling.
Why Pay Attention to Customer Acquisition Cost (CAC)?
Business 101 says this:
If you’re selling something, you need to promote it.
Getting new customers usually means spending money.
That money could be spent on any marketing activity, such as paying for Facebook ads, purchasing AdWords, printing out leaflets and posting them or standing on a street and asking people to sign up.
Whichever option you go with, you’ll have to pay.
The AMOUNT you’ll have to PAY, at the most basic level, is your CAC. If you spend $100 on Facebook ads, that’s how much you’ll have to pay your 1st client.
Your CAC is $100. You spend $100 on paid search ads and $50 on direct mailers, but end up only getting 2 new customers.
Your CAC is $75 ($150 2).
This simplified explanation of the CAC equation shows how to calculate CAC.
In our calculation above, we calculated CAC by dividing total acquisition costs by new customers. However, you can calculate CAC by channel by breaking out the spend on a specific medium by how many customers it brought in.
Acquiring new customers and retaining existing ones are two of the most important parts of running a business. This is why it is so important that you monitor your budget and spend, so you can increase your number of customers and minimise your costs.
Understanding your CAC can accelerate your sales funnel and increase your odds of success.
The customer acquisition cost (or CAC) is the total cost of marketing and sales efforts required to acquire a customer.
This lets you identify which resources are needed most for future growth, fine-tune your process, and properly allocate your funding.
Below we will look at why it’s important to calculate CAC, what it consists of and how you can do it.
What should you look at when calculating customer acquisition cost?
When calculating your customer acquisition cost, you should look at the number of customers acquired, as well as the cost to acquire those customers. This will help you determine your true profit margins.
Your ultimate goal will be to bring your CAC down, and simultaneously increase your overall profit.
When calculating your customer acquisition cost, you should look at your overheads, including:-Marketing activities, such as advertising, content creation and publishing-Employee salaries, bonuses and commissions
Don’t forget to take a look at your production costs, as well as your inventory.
What are the benefits of calculating customer acquisition cost?
By calculating the lifetime value of your customers, you’ll gain a better understanding of how much you can spend to acquire a new customer.
By calculating your customer acquisition costs, you will have a better understanding of how much it costs to acquire new customers. This information can be used to make more informed decisions about where to allocate resources for sales and marketing efforts.
Additionally, less money may need to be invested in staff as targets are more easily reached. Finally, happy customers and brand loyalty are likely to result from more streamlined processes.
When your new customers are happy, they can play a part in boosting new customer acquisition by leaving positive reviews and verbally spreading the word about your brand. This not only saves you money on advertising, but also helps build goodwill for your company.
The benefit of using Google Voice is that it doesn’t cost anything.
Common mistakes when calculating CAC
Some marketers will try to work around the problem of users converting outside of the desired time period by pinning down their user’s average time between first touch and conversion to then work this into their CAC calculation.
Let’s say that your average user converts 60 days from when they first sign up. A marketer may then suggest adding your past sales and marketing costs that influenced that conversion and dividing that by the current CAC.
You would expect, based on past sales and marketing costs, that 60 days after incurring them, half would be paid off.
In practice, I have found that this rarely happens. Your sales, marketing campaigns, and discounts, for example, will continually change the data in your analytics.
One common mistake when calculating CAC is using an inflexible formula that is based on assumptions. This will not provide meaningful data and might work sometimes, but certainly not all the time.
One common mistake when calculating CAC is using a relative cost per click and conversion rate channel by channel. This can lead to inflexibility by attributing the conversion to the user in the door and using a fluid conversion rate to project conversion success.
This raises the question of how to correctly assign credit to a user for a single advertisement and not all five advertisements they previously saw. The simplest method for most advertisers is to assign credit based on the last impression.
The attribution model uses the user’s interaction with their most recent advertisement or marketing campaign.
The amount of time it takes for a prospect to become a customer is relative to each specific ad campaign, marketing campaign, or marketing medium.
If you attempt to split your CAC into different time frames, your calculations will get too complicated.
For smaller businesses, attribution is a topic that’s probably better left on the back burner.
Conclusion
There are many CAC formulas available for basic business analysis. It is important that you choose the one that is most appropriate for your business and your current needs. Cost per customer acquisition calculator tool can help you determine the costs of acquiring a new customer easily by inputing the required factors like advertising and marketing expenses, the cost of sales, and the cost of customer service.
