How to calculate cost of customer acquisition?

[Diego]

I am interested in calculation method (formula).

[John Morris]

Customer acquisition cost definition

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

where:

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.

CAC 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.

Edited February 14, 2020 by John Morris

[Elias]

It could be an empirical method as well: what ever average costs in your company is spend in a certain period dividing on the number of customers you have acquired in a same period.