Customer Acquisition Cost (CAC) Calculator

What Is the Customer Acquisition Cost?

Customer acquisition cost is a metric used to measure and calculate the resources and expenses incurred to acquire a new customer. This metric is important for businesses because it can be useful for financial planning and measuring the efficiency of their marketing and sales processes. 

Knowing how much it costs to acquire a new customer can help you plan ahead and set your goals for growing your business and customer base. In essence, calculating your CAC can help you make informed decisions for your company, such as optimizing your marketing efforts if the score is too high.

Why Is CAC a Crucial Business Metric?

Customer acquisition cost is often used along with the customer lifetime value (LTV) metric to measure a new customer’s generated value. Both are crucial business metrics because companies can use them as tools for improving their profitability and profit margins. 

Here are a few reasons why CAC is an important business metric:

• Evaluate sales and marketing effectiveness: Knowing your customer acquisition costs can give you insights into your sales and marketing ROI.
• Strategic planning: Understanding the customer acquisition cost can help you make informed decisions for setting your budget and resources for your marketing and sales efforts.
• Profitability: If you know how much it costs to acquire new customers, you can plan and optimize your prices to have the highest ROI. A high CAC may require you to raise prices to cover costs and ensure profitability. On the other hand, low costs indicate that you can lower prices, which could potentially attract new customers.
• Measure company growth: Calculating how much time it takes to recover CAC through marketing and sales revenue can give you perspective on how fast your company is growing. A good CAC indicates that you can acquire new customers and scale your business without depleting resources.

CAC Formula

Below is the formula for computing customer acquisition cost:

The CAC calculator computes the cost with a straightforward formula. Customer acquisition cost can be calculated by dividing sales and marketing costs by the number of new customers acquired. In this formula, sales and marketing costs are the total cost of a company’s sales and marketing efforts to acquire new customers over a specific period, like the marketing team’s salaries and paid advertising costs. The number of new customers is the total number of customers that the business acquired within the same measurement period.

Familiarizing yourself with customer acquisition cost and the CAC calculator—and interpreting the results—can help improve your company’s ROI, profitability, and profit margin.

Understanding CAC Results

Determining whether a customer acquisition cost result is “good” or “bad” can differ depending on factors like your industry, company size, and business model. In general, it is good if the customer acquisition cost result is lower than the LTV. Ideally, you should aim for an LTV to CAC ratio of 3:1 or 4:1.

A good customer acquisition cost can vary depending on a company’s efficiency. A lower cost means that the company has efficient marketing efforts and acquisition strategies. Continuously optimizing your marketing strategies can help reduce CAC and maintain or even increase LTV.

Whether the score is good or bad can also depend on a company’s growth stage. For example, a startup may have a high customer acquisition cost at the start since it’s in the process of building brand awareness and market growth, but the costs should decrease as the company grows and refines its marketing strategies.

Industries have different standards, so the average customer acquisition cost can vary per industry. The SaaS industry and B2B companies tend to incur higher customer acquisition costs, with an average of $702 and $536 respectively. On the other hand, eCommerce businesses have a lower acquisition cost average of around $70.

How to Lower Customer Acquisition Costs

If you find that your customer acquisition cost is high, there are ways to reduce it. Here are a few tips and strategies you can use to optimize your marketing efforts when you acquire new customers:

• Aim for organic social media growth: You are more likely to attract more potential customers if you create content that’s valuable and relevant to your target audience. One way to grow your organic social media reach is through user-generated content. Encourage your customers to share their experiences with your brand. This will help build brand credibility and potentially get the attention of new customers.
• Optimize advertising: A possible reason for having a high result is that your marketing and sales expenses are too high in proportion to the number of new customers you have acquired through your marketing efforts. Analyzing your target audience and ensuring that you are prioritizing the right audience can help optimize your marketing strategies and reduce costs.
• Improve conversion rates: Some customers may have shown interest in a product or service but haven’t decided to make a purchase. Focusing on these potential customers with strategies like personalized ads or follow-up emails to remind them of their interest can improve your conversion rates and reduce the cost of acquiring new customers.
• Improve customer retention: Increasing your repeat customer rate, average order values, and purchase frequencies can help reduce your customer acquisition costs. Keeping your customer retention rate high and acquiring new customers can prevent CAC from increasing.