What is customer acquisition cost?
Customer acquisition cost (CAC) is an important business metric that measures the amount a company spends (typically referring to sales and marketing costs) to acquire customers. Examples of these sales and marketing expenses include the salaries of members of your sales team, your budget for social media marketing, additional professional services used for marketing campaigns, and more. Tracking CAC can help businesses optimize their sales and marketing efforts and discover the most cost-effective channels for converting potential customers into new customers. To calculate CAC, divide the amount of money spent on acquiring customers within a specific time period by the number of customers acquired in that same time period.
Contextualizing CAC with other metrics
Customer acquisition costs should always be considered in relation to other metrics, such as customer lifetime value (LTV), customer churn rate, and customer retention rate, to provide accurate insights into the overall health of a business. In order for a business to be viable, the costs incurred by a company to acquire customers cannot exceed the amount that the average customer spends with the company over their customer lifetime.