Your Fast Track Guide to Understanding, Calculating and Improving                                                          6 Minute Read​
Pillar # 1 - Your Customer Acquisition Cost [CAC] in 2023 

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 What Is Your Customer Acquisition Cost [CAC] ?

Your Customer Acquisition Cost, or ​CAC, is a crucial business indicator used by businesses of all sizes to determine the resources they need to attract new customers and continue their growth. Its a quick and easy way to understand how your business is performing . Once you know the cost of acquiring each new customer you'll know that the lower that number the higher your profit margin is. If you want your business to expand its customer base and still make a profit, then it's vital to understand what CAC stands for, its significance, and how to  calculate it.

A business's CAC is the total sales and marketing cost required to earn a new customer over a specific time period.  The total sales and marketing cost includes all program and marketing spend, salaries, commissions, bonuses, and overhead associated with attracting new leads and converting them into customers. Successful businesses are aiming to constantly reduce the cost of customer acquisition — not just to recoup revenue, but because it's a sign of the health of your sales, marketing, and customer service programs.

Think about it: If your inbound marketing program is operating successfully, you don't have to dedicate as many resources to ad spend to generate poor-fit leads when your blog content is bringing in high-quality organic leads 24 hours a day. If your sales staff is constantly prospecting and nurturing a healthy pipeline, you don't need to rush to hire additional reps to hit your quota each quarter. And if your customer success team can retain and cultivate relationships with happy customers, they will help generate new customers by writing testimonials and reviews, serving as case studies, and telling their friends and family about you. In addition, if the leads from these sources become customers, you will have earned them free of charge, which will lower your customer acquisition cost even further.

​If your company is looking to lower its CAC, you first need to know how to calculate your current customer acquisition cost.

How to Calculate Your Customer Acquisition Cost

The easiest way to calculate your CAC is to add up all the cost elements associated with acquiring each new customer and then divide that amount by the number of customers acquired. This is typically viewed in a specific period, such as a tax year or per quarter.

Here's a simple example, if you spent €15,000 in the past month to acquire new customers (including marketing, sales, salaries, and overhead costs) and had 1000 purchases from new customers, your CAC would be € 15.

Let’s assume a CRM software company spends  €30,000 on a marketing campaign. After the campaign, the company discovers that 1,200 new customers started a subscription for their service. Every year, the company is expected to spend an extra €50,000 on technical and production costs for these new customers. The CAC for this software company would be: CAC = (€50,000 + €30,000) ÷ 1,200 = €80,000 ÷ 2,000 =€ 40This means the software company spent €40 to acquire each new customer.

Provided you manage these new customer relationships well, you’ll be able to motivate these customers to generate more new customers for you at an exceptionally low cost using modest rewards, genuine testimonials, reviews and sharing their experience of your service with their friends and family. If the leads from these sources become customers, you will have earned them free of charge, which will lower your customer acquisition cost even further.

3 Practical Ways to Reduce Your Customer Acquisition Cost

To reduce your CAC you should do everything possible to convert leads into paying customers, increase the value of what customers receive, and use a customer interaction management (CRM) platform to maintain engagement with your audience.

1. Easy Works Best 

Make sure it's simple and straightforward for visitors to convert into leads or for leads to convert into customers and make purchases on and offline . Optimize your site for mobile form submissions and shopping, test website copy to make sure it's as clear as possible, and try to create a touchless sales process so your visitors can buy from you 24/7.  You can use Google Analytics to monitor the basics, like how often customers abandon their shopping carts after adding an item. You can also check how fast your web pages load and think about how to make your landing pages more attractive if your website visitors leave without clicking on other pages. You should also check how your site looks on mobile devices and how smooth the checkout process is for buyers. Making all of these experiences better for the customer will lead to more conversions
 
Why It Works

Most of us consciously or subconsciously seek simplicity in our lives. Making sure your sales and returns processes are transparent, easy to follow and efficient  and will help you convert more leads into sales.

2. Add Value to Your Offer: 

The value that users perceive of your products and services is subjective, so adding features that other similar companies have implemented may not have the desired effect. It's best to spend time interacting with customers—via surveys or emails—to find out what best suits their needs. You can also study statistics such as customer retention rates and the more subjective comments of the reviews you receive. If you see correlations, improving one can enhance the other.
Always be looking to enhance your customer experience by giving them what’s valuable to them. Collect customer feedback, and whether it's a product fix, a new feature, or a complementary product offering, do your best to give customers what they're asking for to make them stick around longer. 

Why It Works

Customers love to feel they are getting added value at no extra cost . Competing businesses often use this tactic to differentiate their customer proposition to convert more leads into sales.

3. Use a CRM system:

​ A CRM platform is invaluable wen it comes to tracking new and existing customers, their movement through your sales funnel, how much they buy, when and where, loyalty program participation etc. You can also use it to manage email lists and campaigns, such as promotions, seasonal email advertising, and drip campaigns , which regularly send emails with engaging content

Why It Works

A no brainer really. To be able to work in a structured way with customer relationships requires order and order. It is therefore the first and most important goal of CRM for many companies. A CRM system gathers all the customer information you need in one place and makes it easy to find the right information when you need it.

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In a HURRY ? Click Here to master Pillar # 2 - Y our Customer Lifetime Value  {CLV]

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