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Customer Acquisition Cost (CAC)

Last updated: Aug 25, 2023

https://cmlabs.co/en-ae/seo-terms/customer-acquisition-cost

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The Definition of Customer Acquisition Cost (CAC)

CAC or customer acquisition cost is the cost required to convince potential customers to buy a product or service. More specifically, CAC is the total cost of sales and marketing required to acquire new customers within a certain period of time.

The types of costs that you need to include in your CAC are advertising costs on various platforms, employee salaries, production costs, technical costs, and other costs needed to attract new customers.

How to Calculate Customer Acquisition Cost

CAC is a metric that companies and web-based advertisers use to determine their profit by comparing sales and marketing costs to the number of customers they have successfully acquired.

The formula for calculating CAC is as follows:

Customer Acquisition Cost = (Sales Cost + Marketing Cost) / Number of New Customers Acquired

To calculate customer acquisition cost is to add up all the costs incurred to get new customers and then divide by the number of customers that were successfully acquired in the period of use of these costs.

For example, let’s say you own a software company that spends IDR 15,000,000.00 on a marketing campaign. After that ad campaign, you managed to get 400 new customers. In addition, you need an additional fee of IDR 20,000,000.00 for the cost of production and technical repair of the software for the new customer.

Based on the formula above, here is how to calculate it:

CAC = (IDR 12,000,000.00 + IDR 20,000,000.00) / 400

= IDR 32,000,000.00 / 400

= IDR 80,000.00

From these calculations, it is found that your software company needs IDR 80,000.00 to get one new customer.

How to Optimize Customer Acquisition Cost

There are several ways to optimize customer acquisition costs. Here are some strategies you can apply:

Optimize Conversions

Steps that you can take to optimize conversions are to improve the user experience on the website, such as speeding up loading times, providing a mobile-friendly website, and making purchase features that can be easily accessed by potential customers.

Increase User Value

You can increase user value by providing what customers need. You can try receiving feedback from customers and providing appropriate responses such as product improvements, feature enhancements, or launching other new products.

Customer satisfaction can increase user retention for your product or service. That way, you can reduce the CAC needed to attract every single customer.

Implement Customer Relationship Management (CRM)

To bring in more new customers, you need to simplify business processes. Several companies have used CRM-based applications to increase sales leads, increase conversions, and retain existing customers.

For example, providing a newsletter, using a cloud-based sales system, or other systems that can increase customer loyalty.