What is the Customer Acquisition Cost Formula?
The formula for customer acquisition cost is:
(Sales Cost + Marketing Cost) / Number of New Customer Acquired = Customer Acquisition Cost (CAC)
Optimizing the Customer Acquisition Cost formula is one of the best ways to improve your sales and marketing strategy. By definition, Customer Acquisition Cost (CAC) is exactly how it sounds; it’s the total cost of acquiring a customer. More specifically, we like to look at it as how much money you spend to take someone from the top-of-funnel (awareness) to the bottom-of-funnel (purchase). While the metric seems simple on the surface, it gives valuable insights into areas of future growth and improvement. We'll take you through how to use the formula for customer acquisition cost, how to understand it in the context of your industry, and how to apply it to the platforms you're using now.
CAC can be assessed for various time-periods (i.e. day, week, month, year) and, if your sales and marketing efforts are tied to certain products or campaigns, you can assign a specific CAC for each.
If you’re confused about how to define total sales costs, total marketing costs, and new customers acquired, we’ve included some nifty definitions and examples below:
- Total sales costs are, well, the costs associated with selling a product. This includes sales commissions, shipping supplies, delivery charges, etc.
- Total marketing costs are, similarly, the costs associated with marketing a product. This includes ad spend, payments to influencers, creative/production expenses, etc.
- New customers acquired are the people who purchased from your store for the first time within a given time period.
When choosing what to include in your calculations, remember: consistency is key! That means, if you decide to include XYZ in your CAC for the month, you should include it in the next month’s CAC as well. Having consistent metrics will allow you to better identify the causes of good or bad performance. For instance, if, over the past few months, you’ve increased your Instagram ad spend and new customers have stayed constant, then you’ll know that those Instagram ads may not be productive in attracting new business.
Connecting The Customer Acquisition Cost Formula to Your Business
Again, as you begin (consistently) monitoring and using the CAC formula, you’ll be able to find insights specific to your strategy. Of course, it’s also important to understand your CAC in relation to your broader industry. To help you know what to expect, we’ve included a list of average CAC per industry (shoutout to Hubspot for the stats):
- Industry/Business Field - Average Customer Acquisition Costs
- Travel - $7
- Retail - $10
- Consumer Goods - $22
- Marketing Agency - $141
- Financial - $175
- Technology (Software) - $395
Further, while you can find sales & marketing costs from many channels, we’ve identified popular platforms that are particularly relevant to CAC. These may be good places to begin if you’re getting started with this metric:
- Facebook Ads: Facebook Ads provides comprehensive reporting tools to show how much you’ve spent on an ad and how many people you’ve converted with the ad. Simply divide your ad spend by amount of conversions, and you’ve got your CAC for that specific campaign!
- Google Ads: Similar to Facebook Ads, Google Ads shows you how much you’ve spent on a campaign and how many people that campaign has converted. This platform actually allows you to set an optimal CAC via its performance targets! (Note: CAC on Google Ads can be found through “cost per action (CPA).” Set your desired “action” to a purchase on a certain page, and you should be all set.)
- Linkedin Ads: Again, like the other ad platforms, Linkedin Ads provides the data necessary to calculate CAC for your campaigns.
Tracking Customer Acquisition Cost with Lido
While CAC is easy to calculate using the cost per customer acquisition formula, it’s important to keep in mind that CAC is one of many valuable metrics to track your performance. If you don’t want to spend hours at the end of the month juggling numbers from your Facebook, Google, and Linkedin accounts, consider trying Lido. Lido can help you build a dashboard to monitor your data and give a look into how your key metrics (such as CAC) change over time.
Sign up for free and get started today.