Customer Acquisition Cost (CAC) is a metric used to measure the cost of convincing a potential customer to buy a product or service. It is calculated by dividing the total cost of sales and marketing efforts (such as advertising, promotions, and sales staff salaries) by the number of new customers acquired during that period. CAC can be used to determine the efficiency of a company’s sales and marketing efforts, and to compare the cost of acquiring customers to the lifetime value of those customers. A lower CAC is generally considered to be better, as it suggests that a company is able to acquire new customers at a lower cost.
The formula for calculating Customer Acquisition Cost (CAC) is:
CAC = Total Sales and Marketing Costs / Number of New Customers Acquired
- Total Sales and Marketing Costs include all expenses associated with acquiring new customers, such as advertising, promotions, sales staff salaries, etc.
- Number of New Customers Acquired is the number of unique customers that have been acquired during a specific time period.
For example, if a company spent $50,000 on sales and marketing efforts in a quarter and acquired 100 new customers during that quarter, the CAC would be:
CAC = $50,000 / 100 = $500
This means that the company spent an average of $500 to acquire each new customer during that quarter.
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