What is CAC in marketing? – Definition
CAC stands for Customer Acquisition Cost. It is a metric that helps marketers determine how much they need to spend to acquire a new customer. CAC is an important metric for companies because it allows them to evaluate the effectiveness of their marketing efforts and identify areas for improvement.
Companies use this indicator to evaluate the effectiveness of their marketing activities. The lower the CAC, the better – it means the company can acquire customers more effectively and cost-efficiently.
How is CAC calculated?
The average cost of acquiring one customer is divided by the average value of each customer.
Example:
Company A has 1,000 customers. It spent a total of $100,000 on advertising and other customer acquisition costs. The average customer value is $10,000. The CAC is therefore $100,000 / 1,000 customers, or $100.
While the number of customers is relatively easy to determine, the costs of advertising are not as obvious. Advertising expenses include not only those directly incurred for advertising campaigns, but also all other costs that the company incurs to acquire a new customer. These include, among others:
- website maintenance and promotion costs
- call center operating costs
- commissions for salespeople and distributors
- fees for the use of marketing tools (e.g., paid email account)
- salaries for employees responsible for customer acquisition
As you can see, estimating CAC can be difficult, but there are many factors to consider. Remember to add to this amount the funds allocated for events, tools, salaries, and our beloved SEO 😉
What can you do to minimize CAC in marketing?
To lower CAC, a company can, for example, increase the effectiveness of its advertising, improve its website, or optimize its sales process. It is worth remembering that CAC is closely related to LTV (Lifetime Value) – the higher the LTV, the lower the CAC you can afford.
How to reduce CAC?
- Use different ways to reach customers – SEO, Google Ads, and remarketing campaigns (this option is available not only in Google Ads but also on Facebook).
- Change your target groups – you can also try to reduce them – don’t be afraid, more doesn’t always mean better!
- Reviews, reviews, and more reviews – good reviews of your services and products will convince more than one customer.
- Pay attention to your landing page. If the conversion rate is not satisfactory, you can try changing something!
- Give newsletters and other forms of marketing automation a chance.
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