Among the various benefits that the internet provides in relation to traditional marketing, one of the most important is the possibility of monitoring and measuring the actions performed.
Through metrics it is possible for the company to understand what is working and what is not, when it comes to achieving business objectives.
One of the most relevant metrics is the Customer Acquisition Cost — or CAC. In this article you will learn how to calculate CAC and why it is so important for managing your business. Check out!
What is Customer Acquisition Cost?
As the name suggests, the CAC is the marketing metric that measures the average amount invested by the company to win each new customer.
In addition to being necessary for marketing, this is a metric that also has an impact on the company’s financial area, helping managers in both areas to make strategic decisions.
In general, the calculation of this number usually involves more directly the sectors of marketing, sales and finance, but this combination may vary by organization or business type. The ideal is that it is always calculated in the same period, and the best thing is that this frequency is not greater than monthly.
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How to calculate CAC?
One of the biggest mistakes in the work of those who work with this metric is precisely in understanding which costs should be considered for the calculation.
Usually, when asked about the topic, entrepreneurs and businessmen usually consider how customer acquisition cost only those investments made in campaigns and marketing actions. However, there are other numbers that need to be taken into account.
For the calculation to be accurate and relevant for decision making, it is also necessary to consider as cost:
- Management tools, salaries and expenses with human resources, both in the sales area and in the marketing area;
- Investment in all marketing actions, such as media buying, events and any promotion to generate leads and sales;
- Telephony and equipment used by vendors;
- Travel, in case they need to visit customers in other locations.
Tip: Do you have a high travel cost in your CAC? Meet Inside Sales!
Having these numbers in hand, it’s time to know how many new customers the company acquired during the period chosen for analysis. It is worth remembering that, for this calculation, only customers acquired from the actions considered above should be considered. Customers from other channels, such as referrals from other old customers, should not be considered.
From this, the total cost, that is, the sum of all costs involved in the marketing and sales areas, must be divided by the number of customers acquired in the period.
The result of the division will then be the average amount spent by the company for the acquisition of each new customer. For example, if your company spends $10,000 on marketing and $5,000 on sales to acquire 100 customers, your CAC is $150.
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Why is it important to calculate the CAC of an e-commerce?
Basically, this number is important, as it will help managers make strategic decisions, since the higher the CACthe lower the profitability and profitability of the company.
For example, if your average ticket — that is, the average amount spent by a customer — is BRL 100 and your CAC is BRL 150, it means that your company is losing profitability and this makes the business model unsustainable. . Of course, we would need to consider LTV, but we won’t address that concept now.
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In addition, with this number in hand, it is possible to determine plausible sales targets for the next period, as you already know how much to invest to win each customer and also how many conversions are needed to generate return on investment.
Understanding how to calculate CAC is one of the first steps in a marketing strategy and sustainable saleswhich walks in the direction of the search for profitability and the increase in sales results
Keep an eye on this metric, and to help you, we’ve created the CAC Calculator Worksheet! Through it, you can calculate your Customer Acquisition Cost and plan how increase your profits!