What is Customer Acquisition Cost (CAC)?
In the realm of business and marketing, Customer Acquisition Cost (CAC) is a critical metric. It measures the total price you pay to acquire a new customer. In simpler terms, it's the cost associated with convincing a potential customer to buy a product or service.
The formula to calculate CAC is quite straightforward:
CAC = Total Marketing Costs / Number of Customers Acquired
The 'Total Marketing Costs' include every expense your business incurs to attract potential customers - advertising expenses, marketing personnel salaries, overhead costs for the marketing department, etc.
The 'Number of Customers Acquired' is the count of new customers gained during a specific time period when the marketing costs were incurred.
Let's say an online retailer spends $50,000 on marketing in a month. During that month, they acquire 200 new customers. To find the CAC, we divide the total costs ($50,000) by the number of new customers (200).
CAC = $50,000 / 200 = $250
This means, on average, the retailer spent $250 to acquire each new customer.