What is customer acquisition cost?
Customer acquisition cost (CAC) represents the overall expense of acquiring a new customer. It includes all expenditures related to sales, marketing, and other activities turning a lead into a paying customer.
CAC provides insight into the effectiveness of your conversion efforts and highlights areas where improvements can be made. Calculating CAC can pinpoint obstacles and inefficiencies within your sales process.
The Formula for CAC:
Tips for reducing CAC
1. Enhance your site’s SEO
Renaissance Digital Marketing aimed to lower its CAC by focusing on search engine optimization (SEO), which involved improving content, technical SEO, and building backlinks. “We saw a 45% increase in organic traffic over six months,” says managing director Doug Darroch. “This led to a 30% drop in CAC, as organic leads are generally cheaper compared to paid channels.”
2. Identify your most efficient marketing channels
Nautilus Marketing reevaluated its marketing strategy by analyzing which channels were most cost-effective. By reallocating funds to top-performing digital ads and cutting spending on less effective ones, they optimized their budget. “These adjustments led to a 15% reduction in CAC over six months,” says Tom Jauncey, co-head of Nautilus Marketing.
3. Target high-value customer segments
Nautilus Marketing further shortened its CAC payback period (the time to recover acquisition costs) by focusing on customers likely to spend more or remain loyal. “Targeting higher-value segments reduced our CAC payback from six to four and a half months,” says Tom. To do this, use segmentation tools to profile customers and customize marketing strategies to cater to the preferences of these valuable groups.
FAQ
What is Customer Acquisition Cost (CAC)?
Customer Acquisition Cost refers to the total amount spent to bring in a new customer. This encompasses all costs related to sales, marketing, and any other efforts that contributed to turning a potential lead into a paying customer.
How is Customer Acquisition Cost calculated?
To determine CAC, add up all the sales and marketing expenses for a given period. Then, divide this sum by the number of new customers acquired during that timeframe. This will give you the average cost to gain a new customer.
What expenses should be factored into the total marketing spend for CAC?
Include costs such as marketing tools and software, employee salaries for marketing teams, advertising expenses, the cost of discounts and promotions, content creation, and any other sales-related expenses that helped with marketing during the specified period.