It’s important for your team to keep track of your Customer Acquisition Cost (CAC) because it allows you to set standards for how much you’re willing to spend to get customers. This blog will help you calculate your CAC so you can measure your success and plan accordingly to review your strategy.
To calculate your CAC you need to add up all the resources that go into acquiring customers and divide that by the number of customers you acquired in that time period. Take into account :
- The salaries of your teams
- The cost of resources like real estate and utilities
- Added expenses like paid digital and subscription costs
CAC = Total Cost of Sales & Marketing
# of Customers Acquired
You don’t want to be too detailed that you’re adding in nickels and dimes but if you’re too shallow, you’re not doing yourself any favors either.
What you’re looking for is a CAC to aim for that allows you to spend money looking for customers but not too much that you run out with no new customers. In order for a CAC to be useful you need to know your Annual Contract Value (how much a customer spends in a 12 month period), to measure if you’re able to recover your costs over a year of revenue.
A CAC that falls within 20-30% of your Annual Contract Value (ACV) is good business.
For example, let’s say your ACV is $10,000. You’re looking at a CAC that’s around 20% of that, meaning $2,000.
Knowing your CAC is crucial to business success because it lets you know quickly if you’re spending too much on leads and not getting any or if you’re not spending enough. Once you have a target set, you can experiment with new ways of acquiring customers cheaply through new platforms, services, products and APIs, or you can try to optimize your conversion and/or retention process. Further, you’ll be well equipped to measure any new strategy and adjust as needed using data instead of blind intuition.