Customer Acquisition Cost Calculator CAC

Customer acquisition is the process of gaining new customers for a business or organization. It’s a critical metric for any business because it directly affects the growth and success of the organization. One way to measure customer acquisition is through the Customer Acquisition Cost (CAC), which is the total cost of acquiring a new customer.

The CAC can help businesses understand how much they need to invest in acquiring new customers and how profitable those customers will be in the long run.

In this blog post, we will discuss how to use a Customer Acquisition Cost Calculator to calculate the CAC for your business.

Step 1: Gather Your Inputs

To calculate the CAC, you will need to gather several inputs.

These inputs include the number of new customers you acquired in the last month, your average revenue per month from those new customers, the amount you spent on direct advertising in the last month, the number of people working in your marketing and sales team, the average salary for a person working in your marketing and sales team, and any other customer acquisition costs.

Step 2: Input Your Data

Once you have gathered your inputs, you can input them into the Customer Acquisition Cost Calculator. The calculator will use this data to calculate your CAC.

Make sure to input accurate data to get an accurate CAC calculation.

Step 3: Review Your Results

After inputting your data, the calculator will display your CAC.

This will give you an idea of how much it costs to acquire a new customer.

Review the results carefully and consider whether the cost is reasonable compared to the amount of revenue you expect to generate from those customers in the long run.

Step 4: Make Adjustments

If your CAC is higher than you expected, you may need to make adjustments to your customer acquisition strategy.

For example, you may need to invest in different advertising channels or improve your sales process to reduce your CAC. Use the calculator to try different scenarios and see how adjustments to your inputs affect your CAC.

Step 5: Track Your CAC

Over Time It’s important to track your CAC over time to see how it changes.

By tracking your CAC, you can see whether your customer acquisition efforts are becoming more or less efficient. If your CAC is increasing, it may be a sign that you need to adjust your strategy.

Conclusion

The Customer Acquisition Cost Calculator is a valuable tool for businesses to understand how much it costs to acquire new customers.

By using this calculator, businesses can make informed decisions about their customer acquisition strategy and adjust their efforts to reduce their CAC.

Remember to track your CAC over time and make adjustments as necessary to ensure that your customer acquisition efforts are as efficient and cost-effective as possible.

What does customer acquisition cost mean?

For every customer you manage to get to purchase your product or to pay for a membership, there is usually a cost acquired to get them to become a customer. This is your customer acquisition cost – the cost to acquire new customers.

The cost to acquire these new customers includes marketing expenses relating to sales specifically such as: advertising, salaries, commissions and bonuses etc.

The lower the cost to acquire new customers, means there is more margin for profit.

Why should you calculate and monitor your customer acquisition cost?

Understanding how much it costs to acquire a new customer will allow you to make important financial decisions for your business moving forward.

Every business understands that if a product isn’t profitable, it isn’t sustainable. Calculating and monitoring your customer acquisition cost is a key metric to determine if a specific product is profitable for your business.

However, it can also uncover whether you’re spending too much to acquire new customers. In some cases it is unrelated to the product, rather how it’s being marketed. If your product isn’t converting profitably, look into whether your marketing strategy is working.

Singular or recurring payments?

Not every business functions in the same way, some sell singular products, others have membership based products.

With singular products, or ‘one-off’ purchases the customer acquisition cost is based on getting that individual sale. For example, it could cost $10 to acquire a customer to spend $50 in your business, the acquisition cost is always lower than the amount the customer spends to ensure the product is turning a profit.

For those businesses who have membership based products the acquisition cost can be significantly different, because these products involve recurring payments. What this means is even if the acquisition cost is higher than the monthly payment, this doesn’t necessarily mean it’s not profitable, because the amount is a recurring payment.

In these situations we have another metric to focus on – your recovery time, which is how long it will take for your business to recover the cost spent to acquire that new customer.

Let’s use a music streaming service as an example. It costs $5 per month to become a member, however the business spends $30 to acquire each new customer.

Here we have to calculate how many months it will take to recover the $30 spent to acquire that customer. We take the CAC and divide it by the recurring payment, this tells us how many weeks, months or years it may take to recover the acquisition cost.

$30 acquisition cost / $5 monthly payment = 6 months to recover the acquisition cost

A shorter recovery time is preferred, however it will vary from industry to industry and also the product type. Digital products tend to recover quicker than physical products.

Anything over 18 months can be problematic for some businesses, especially if it’s a recurring payment that can be cancelled at any time.

One tactic that some businesses use to ensure they’re able to recover the acquisition cost is to offer yearly membership exclusively, rather than monthly payments where you can cancel your membership at any point.

How to calculate CAC

To calculate your customer acquisition cost you need to add up all your sales and marketing costs and divide it by the total number of customers acquired.

Sales & marketing costs / new customers = CAC

For example: a beauty business spends $3,000 on a campaign which brings in 114 new customers. 

$3,000 / 114 = $26.32 to acquire a new customer

How to calculate CACRT

Continuing with the beauty business, they offer a monthly subscription service of $10.

To calculate your customer acquisition recovery time you need to take the customer acquisition cost and divide it by the monthly subscription fee.

CAC / revenue per period (week/month/year etc) = CAC Recovery Time

For example: it costs the beauty business $26.32 to acquire a new customer, therefore we divide this amount by the monthly subscription fee of $10.

$26.32 / $10 = 2.6 months to recover the acquisition cost