Customer acquisition cost

What is customer acquisition cost?

Customer acquisition costs (CAC) refer to how much it costs a company to acquire a new customer. By measuring their return on investment, they can improve their client base. By dividing the cost of acquiring a customer by the cost of converting prospects to customers (marketing, advertising, sales personnel, etc. ), we can calculate CAC.

How to Measure Customer acquisition cost

You calculate CAC by adding up your marketing and sales costs (the amount you spent on acquiring new customers) and then dividing it by the number of customers you acquired. In most cases, this is calculated for a given time period, such as a fiscal year or quarter.

Marketing And Sales Costs/Number Of Customers Acquired= CAC

The CAC per customer would be $2 if an organization spent $2,000 on marketing and acquired 2,000 new customers in a year.

A company bringing in 500 customers, on the other hand, would have a CAC that is twice as high, or $2, since they spend the same amount of money while bringing in half as many new customers.

There are several factors that go into calculating the customer acquisition cost, including the cost of several marketing strategies and the salaries of employees.

Formula for calculating customer acquisition costs

An example of calculating the cost of acquiring a SaaS customer

By reselling original equipment manufacturer (OEM) items by major producers such as Cisco and Fortinet, Whole Networks provides networking equipment like routers, switches, access points, and servers. This is how Whole Networks’ numbers stack up:

• Customer acquisition costs are $180 per customer.
• Whole Networks customers stay with the company on average for ten years.
• There is a 19% profit margin per customer for this company.
• Over the course of a customer’s lifetime with Whole Networks, they spend an average of $57052.
• Over the lifetime of a Whole Networks customer, the average gross margin would be $0.19 x $57052 = $10,840. A Whole Networks customer’s CLV is shown here.