The cost of customer acquisition (CAC) can be described as a measure that describes the amount businesses spend trying to find new customers. In addition to the necessary resources to attract and enlist new customers, CAC is a crucial business measure to determine the overall health of your business and financial performance.
Therefore, this article is essential if you are unsure of answers to the question ‘ how to calculate CAC?’.
Understanding CAC
Customer acquisition costs represent the total cost of work and resources companies invest in acquiring new customers willing to pay. The CAC evaluates the amount businesses invest over a specific period to gain new customers with the number of consumers they get.
The ROI and overall efficiency of your customer acquisition strategy can be determined with the help of the CAC. When companies can grow their client base and keep their CAC at a minimum, they will be profitable and expandable.
How do I calculate the cost of customer acquisition
There are a variety of answers to how to determine the cost of customer acquisition, and you must know which one is best suited to your company.
The most common cost of acquisition for customers is the formula.
CAC = Marketing and sales costs or the number of new customers
Most companies use this formula as their standard method for calculating clients’ acquisition cost. Divide the sales and marketing expenses incurred during a particular period (for instance, months, a quarter or a full year) by the number of new customers the company has acquired in that period to calculate CAC.
The CAC formula is fully loaded.
A fully loaded CAC formula covers all costs of acquiring clients for your business. Fully loaded costs comprise of the following: the following:
The overhead costs for marketing and sales personnel, including desk space or office rental
Legal fees associated with contract drafting for marketing and sales teams
Special deals and discounts are available for new customers
If you’re a marketer, this whole method of calculating CAC could be a bit too extensive. However, the CAC calculation that is fully loaded will show how your business can expand. It is an excellent tool for entrepreneurs as well as investors who are looking to raise funds.
Factors that make up the calculation
The two primary spending categories–marketing and sales–are taken into account by the general CAC calculation. The following information is frequently used to calculate CAC.
Ads
The amount you spend on advertising is the amount you invest in advertising. Advertising is an excellent way for companies to bring in new customers. Your intended audience needs to be able to connect to your ads to make them effective. It is possible to determine the value of a marketing campaign when you’re not sure whether you’re receiving a fair ROI by dividing the amount of money earned by advertising by the cost of the campaign.
Salary for employees in sales and marketing
The cost of the hiring of sales and marketing specialists.
Services for content and creativity
A creative agency or an internal team of creatives could be utilized for content creation, design writing, copywriting, and editing.
tech stack to support marketing and sales
The cost of purchasing or maintaining the tech your marketing and sales personnel employ to attract new customers. They include CRMs and diverse tools to manage website marketing via email, automation, and other reasons.
The cost of producing
It’s the sum of money that is used to create physical material. For example, businesses need to employ a studio and invest in audio and video equipment to make films that attract new customers.
Cost of product
These costs are paid for product maintenance and enhancement, including technology and staff costs. For example, the SaaS business may have to update its software to improve the user experience.