Customer Acquisition Cost is one of the most important indicators a company can use to measure its effectiveness in acquiring new customers. The CAC refers to the cost that a company must pay to acquire a new customer.
This indicator also includes the cost of a potential customer buying from us. In essence, to go from a simple lead to a user who finally buys our product or service.
Why is CAC Important?
CAC is a crucial metric for companies because it allows them to understand How much are they investing in acquiring new customers and if that expense is generating a positive return. If the cost of acquiring customers is too high compared to the value that each customer brings to the company, then it is possible that the company is losing money instead of earning it.
On the other hand, if the CAC is low, this indicates that the company is doing a good job acquiring new customers and is generating a positive return on its marketing and sales investments.
In addition, the CAC can also be used to compare the effectiveness of different customer acquisition channels. If a company is investing in multiple acquisition channels, such as online advertising, public relations and events, the CAC can help the company determine which channel is most effective in acquiring customers and which channel needs improvement.
How is CAC Calculated?
The CAC is calculated by dividing the total cost of acquiring customers by the total number of new customers acquired in a given period of time. The time period used may vary depending on the company's needs, but a month or quarter is generally used. In consulting businesses or businesses with a very high average ticket, this period may be extended Until 12 months.
For the total cost of acquiring customers to be as accurate as possible, we have to include all the expenses that have been used in that campaign:
- Advertising costs (whether online or in traditional media).
- Employee salaries (both for the marketing and sales teams)
- Costs of software tools that were used during that campaign.
For example, if a company spends $5,000 in Google Ads and others 500 salary terms (the time that employees have invested in that specific campaign) and thanks to that campaign we have achieved 50 new customers during that month, then the The company's CAC would be $110 per customer.
CAC = (Total Customer Acquisition Cost)/(Total Number of New Customers Acquired)
In this example, the company would have to ensure that the average value of each customer acquired is greater than $110 for the acquisition of new customers to be profitable.
How Can CAC Be Improved?
There are several strategies that companies can use to optimize their CAC and improve their profitability.
Identify the most effective channels: The company must analyze the data from its marketing and sales campaigns to determine which customer acquisition channels are most effective and focusing its efforts on those channels. This can include channels such as online or traditional advertising, PR campaigns, content marketing, online events, etc.
Improve the quality of the customers attracted: Not all customers are the same in terms of their value to the company. The company can work to improve the quality of acquired customers by focusing on those who are more likely to become lifetime customers and generate higher revenues.
For this reason, it is important to be clear about who our ideal customer is and what their aspirations, desires and pains are in order to be able to fine-tune our communications when it comes to attracting new customers.
Reduce costs: The company can look for ways to reduce customer acquisition costs, such as negotiating better prices with suppliers or using marketing and sales automation tools to reduce the workload of employees dedicated to customer acquisition.
Increase the average value of each customer: The company can work to increase the average value of each customer acquired through the sale of additional or complementary products or services, or through loyalty and referral programs, where it works in Customer Experience plays an essential role.
Conclusion
CAC Cost is an important metric that companies can use to evaluate the effectiveness of their customer acquisition efforts. Working it right can help companies to improve their profitability and effectiveness, identify the most effective customer acquisition channels and improve the quality of the customers attracted.
On the other hand, as the title of this article says, it's about acquiring customers, not just sales. For this reason, working on the experience experienced by our customers at every point of contact they have with our brand it is vital. From the start we have to work for build customer loyalty, that is without a doubt the best investment we can make as a company.
If you need us to help you improve your customer loyalty processes, write to us at this form and we'll be happy to hear from you.
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