Definition: Customer acquisition cost
What are customer acquisition costs?
Customer acquisition costs are the approximate costs a business has to spend to win a new customer. Otherwise known as CAC, customer acquisition costs are increasingly used to gauge performance and ROI on digital marketing activities such as pay per click (PPC) campaigns and banner advertising.
Understanding the cost of customer acquisition is important as it helps marketers focus their efforts on the high-performing content, messaging, and channels that will drive more conversions, build brand awareness and customer loyalty.
Read our blog: How digital asset management helps customer marketing.
Customer acquisition costs can include a number of components and activities including:
- Advertising costs
- Cost of your marketing and sales team and other personnel; salaries, additional agency fees, consultants, etc.
- Costs relating to content production and publishingTechnical costs including platforms, software, etc.
- Inventory upkeep e.g the costs you incur from storing or managing your products or services.
How to calculate customer acquisition cost
You can calculate customer acquisition cost using this formula:
Customer Acquisition Cost = Cost of Sales and Marketing divided by the Number of New Customers Acquired.
For example:
An independent clothing retailer spends $10,000 on marketing and $5,000 on sales and acquires 200 new customers. Therefore, the company’s customer acquisition cost is:
CAC = ($10,000 + $5,000) ÷ 200 = $15,000 ÷ 200 = $75
Naturally, customer acquisition costs will depend on the nature of your business, what you sell, and the typical customer behaviors and trends. Some brands will have a longer sales cycle, for example. Others will have a higher purchase value or customer lifespan.
All these things need to be taken into account when analyzing your customer acquisition cost to make sure you optimize ROI and get a better understanding of your marketplace and customer.