You already know that keeping customers is cheaper than getting new ones. But how closely have you been tracking the cost of customer acquisition (CAC)? Customer acquisition costs are the amounts you pay to land a new customer, and they’re important metrics to measure and track.
The customer acquisition cost can be determined with a simple formula, no matter what business you’re in or how many customers you’ve acquired. The formula will help you find out exactly how much new customers cost your business to acquire across a specific period of time.
Here’s the formula:
Formula: Divide the total costs by the total number of new customers across a specific time period.
By dividing the total acquisition costs, or the total amount of money you’ve spent to acquire new customers over a specific period of time, by the total number of new customers you’ve acquired in that same time period, you can determine the new customer cost.
Now that you know what each new customer costs you, think about how that fits into your plan. Are you getting enough return on investment? Which marketing channels or customer demographics cost you the most to acquire a customer? Which cost the least? Plan changes to your strategy around these findings.
Why measure CAC?
Measuring and tracking your customer acquisition cost will help you optimize and better plan your marketing strategies and campaigns. Customer acquisition costs fluctuate and shift all the time, so don’t get comfortable and stop testing. This is one scenario when the moral of the tortoise and the hare definitely applies.
Keep monitoring and tracking your customer acquisition costs, and the most important part: Stop spending money on any campaigns that aren’t giving you an adequate Return on Investment (ROI). Analyze the campaigns for issues or signs of trouble. Go back to the drawing board, and try something new.
Don’t be afraid to spend money to test new possibilities, but train yourself to be afraid of spending money on campaigns not generating enough ROI.
Customer acquisition cost isn’t the same thing as cost per action (CPA). The CPA is the amount you pay to convert each customer, but it applies to both new and returning customers.
CAC only applies to new customers that have never done business with you before–customers you’ve acquired. It’s designed to help you measure how successfully and cost effectively you’re acquiring new customers, and can help you make decisions when developing your strategies.