Business in theory seems easy; you’ve just got to generate more revenue than costs. However, what many people don’t realize is that the costs aspect of the equation can be challenging to calculate, such as the cost to acquire a new customer, known as the Customer Acquisition Cost.

The Customer Acquisition Cost (CAC) is the combined cost of all your marketing activities during a certain period, divided by the number of new clients you obtain.

So, if you spend $1000 on marketing, and obtain 100 new customers, the Customer Acquisition Cost would be $10.

Obviously, the lower you can make your Customer Acquisition Cost, the more profitable your business will be.

Know Your Numbers

The Customer Acquisition Cost is vital for your business. Without it, you don’t know how much you need to invest in marketing and sales to generate new customers. You also don’t know whether you are charging too little to meet costs on your product or service.

If you know the lifetime value of your customer, you can determine the ROI and whether there is a significant value to your marketing campaigns.

The Internet Changes The Game

Before the internet, marketers had only limited ways to test audience reactions to marketing content and analyze it. Billboards, leaflets, and other media would be used in parallel, and new customers would simply buy products.

Now, with the rise of the internet and behavior analysis, you can see directly what audiences react to and how. Also, emails, landing pages, videos and other online marketing materials can be split tested to see what content audiences prefer.

Split testing and seeing the costs associated with each test can help you find ways to reduce the Customer Acquisition Cost. This makes your business more profitable.

Conclusion

The Customer Acquisition Cost is a vital business metric. Without it, you can’t streamline your marketing to ensure it is generating the growth you want for a reasonable cost. You also don’t know if you can lower marketing spending but retain the same business growth.

When did you last measure your Customer Acquisition Cost? Have you tried split testing yet?

Let us know in the comments below.