A core element of marketing is cost. To know whether you’re spending money in the right places and targeting the right audience, you look at factors like ad spend, cost per click, cost per lead, conversion rate, and return on investment.
Your customer acquisition cost (CAC) is a metric that looks at the bigger picture in terms of how much you’re spending to acquire a customer. When combined with other marketing-focused metrics, CAC is a crucial piece of your marketing puzzle that helps you determine whether you’re making a desirable profit as a result of your marketing.
What Is Customer Acquisition Cost?
Customer acquisition cost tells you how much you spend, on average, to earn each customer that comes your way. When calculating your CAC, you’ll need to consider how much you spend on things like your:
- Mailing list
- Sales employees
- Marketing strategies
- Promoted posts and paid ads
- Influencer partnerships
Anything that costs your business money to draw in customers is part of your customer acquisition cost. How many customers you get from those tools and tactics will determine your CAC.
Why Is CAC Important to Businesses?
As a business owner, you should want to know if the efforts you’re making are helping your goals, especially when it comes to the money you spend on marketing to your ideal customer. Customer acquisition cost is a metric that can provide insight into the effectiveness of your strategies.
Your CAC tells you how much you’re spending per customer to get them on board. Say, for example, you’ve spent $2,000 on a new marketing campaign. You got 100 new paying customers from that campaign. Your CAC is $20 for this campaign (your costs/the number of customers), meaning that you spent an average of $20 to get each of your new customers.
Your CAC will help you determine if those marketing efforts are worth it based on how much you’re spending to obtain each customer and how much profit you’re making from them.
What’s a Good CAC?
A good CAC might look different for every company, depending on the value of their products and how much their customers spend. A $20 CAC could be an excellent number for a technology company with an average sale of $600 but not so great for a craft supply company with an average sale of $50.
To determine if your CAC is a good number for your business, consider the following:
- Do your new customers make one purchase, or do they keep coming back to buy more? If you have customers who continue to buy from you after you’ve initially acquired them, you’ll want to consider the customer lifetime value (CLV). This metric can be more valuable than your CAC because it determines how much a customer contributes to your overall revenue. If you spend $20 on a customer who continues to make multiple purchases throughout the year, that $20 was well spent.
- How much of a profit are you making from each customer, on average? When you add up all of your expenses that went into what your customer paid for – your employees, vendor costs, marketing, etc. – do you make enough profit to justify your CAC? If you’re only getting about $5, on average, for each $20 customer, you’re not making enough for that $20 spend to be worth it. However, an average profit of $100 for each $20 customer could be worth your costs.
It’s important to point out that having a $20 CAC is not the norm. Take a look at this presentation from Chatter Buzz, which shows average CACs from various industries. The lowest CAC on the list comes from the travel and hospitality industry, about $44.73 per customer. The highest CAC goes to the technology industry, about $133.52 per customer. These numbers might look scary at first, but with the right marketing techniques in place, these customers could become lifetime customers (and that’s priceless).
Improving Your CAC
The key takeaway when it comes to your CAC is that you want that number to be as low as possible. The less you spend to obtain a customer, the higher your profit, no matter how much you make from each one. Here are a few ways to improve your CAC:
- Understanding your customers’ behaviors and targeting their natural behaviors with a successful sales funnel.
- Form relationships with customers. Learn about them, find out what they need with polls, surveys, and feedback, and continue to follow up with them through meaningful communication after they’ve made a purchase.
- Make it easy for customers to contact you at every step of their buying journey. Be available by phone, email, live chat, and social media.
- Create a winning website. Make it easy to navigate and search, and make it engaging enough that people want to keep digging through your information, products, and services.
- Don’t forget about your current customers. They’re already there, so you don’t need to pay to get them. Work on improving your repeat purchase rate with a loyalty program and exclusive offers for your existing customers.
One way to improve your CAC is by creating engaging content that keeps your visitors and customers coming back for more. Install the Google Analytics Dashboard for WordPress plugin to get valuable insights on your top traffic sources and most popular website pages right within your WordPress dashboard. By identifying the content your visitors engage with most, you can create compelling content precisely targeting what your visitors want – boosting your chances of turning those visitors into paying customers.