Customer acquisition cost (CAC) is a cost, which you spend to engage a potential customer to buy your product or service. It is used for marketing expenses calculation. It is especially effective in e-commerce and SaaS, where marketing analytics can be more clear and the expenses calculation more accurate. The CAC evaluates the efficiency of advertisement campaigns.
Simple CAC calculation formula is:
CAC = Acquiring costs / Number of customers
Acquiring costs = all the costs spent on acquiring customers
Number of customers = the number of customers acquired in the period the money was spent
For example, the company spent $500 for PPC online advertising and acquired 100 new customers. CAC is $500 / 100 = $5.
Customer acquisition cost can also be calculated for some custom time period, for example, one year. Please note, that there might be a bias in some cases, especially for CAC calculation in a time period. There are other factors, such as past campaigns, that can affect the outcome in a given time period. For example, if you invested money in the brand promotion last year, this also affects the CAC (positive or negative) of the current year.
Companies use the CAC to analyze an advertisement campaign to optimize and reduce marketing expenses.
Also, the CAC is used by investors to evaluate the company’s profitability determination and scalability.