Customer acquisition cost
Cost of winning a customer to purchase a product or service From Wikipedia, the free encyclopedia
Cost of winning a customer to purchase a product or service From Wikipedia, the free encyclopedia
Customer acquisition cost (CAC) is the cost of winning a customer to purchase a product or service. As an important unit economic, customer acquisition costs are often related to customer lifetime value (CLV or LTV).[1]
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With CAC, any company can gauge how much they’re spending on acquiring each customer. It shows the money spent on marketing, salaries, and other things to acquire a customer. Keep an eye on CAC so it doesn’t get out of control. For example, no rational company would spend $500 to acquire a new customer with an expected LTV of $300 because it would drain $200 of value per customer acquired.
CAC, combined with LTV is a frequently compared metric, particularly for SaaS companies. They can manage their expenses, see their growth, predict their future moves, and expand if the business allows.[2]
There is a simple and complex method for calculating acquisition costs.
The simple method divides the total marketing costs to acquire new customers by the total number of customers acquired in a defined period.
In addition to the costs incurred in marketing, the complex method includes sales and marketing wages, software costs for sales and marketing, all additional professional services such as designers, consultants, etc., as well as other overhead costs.
Customer lifetime value expresses the monetary value that a customer is worth to the company in the course of a customer relationship. If the ratio of LTV to CAC is now calculated, different values can result.
In the approach and review phase of venture capital companies to start-ups, the CAC and LTV ratios can be of great importance depending on what type of market or product is produced.
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