CAC is an acronym for Customer Acquisition Cost. It is a key metric used to evaluate the cost-effectiveness of a company’s marketing and sales efforts in acquiring new customers. Customer Acquisition Cost helps businesses understand how much money they need to spend to acquire a new customer and is an essential component in assessing the overall profitability and sustainability of a company’s customer acquisition strategy.
The formula to calculate Customer Acquisition Cost (CAC) is:
CAC = Total Sales and Marketing Expenses / Number of New Customers Acquired
To calculate the CAC, a company needs to sum up all the expenses related to sales and marketing activities over a specific period, such as a month or a quarter. These expenses may include advertising costs, marketing campaigns, salaries and commissions of sales representatives, promotions, events, and any other expenses associated with attracting and converting potential customers.
Next, the total sales and marketing expenses are divided by the number of new customers acquired during the same period. This provides the average cost incurred by the company to acquire a single new customer.
Companies may want to consider adjusting their calculation based on the length of their sales cycle. For example, it’s fairly common for a company to look at new customers in the current period and compare to prior period sales and marketing spend.