Want to calculate the customer acquisition costs for your business? Just enter the figures for a given month below:
What does customer acquisition cost mean?
Customer acquisition cost is the amount spent to acquire a new customer. This figure includes sales and marketing costs such as advertising, salaries, commissions, bonuses etc.
For example if you spend £100 on sales and marketing for a product, and in return get 5 new customers, it means you spent £20 per customer to get that sale.
There is no standard cost to acquire a customer, as it is very industry dependent. The cost to acquire a new customer can vary from business to business, and also vary based on the product. For example digital products have higher margins so they can afford to have a higher CAC, compared to physical products.
Why is your customer acquisition cost important?
Measuring and monitoring your customer acquisition cost is useful to determine the profitability of a product or service, as well as future development or investment.
If your customer acquisition cost increases it means you are paying more to acquire each new customer. This may be reasonable for a business that’s attempting to acquire recurring payments from customers which means they have a longer LTV, however, for those that aren’t it could mean that they are reducing their profit margins considerably.
For example, if a product is £65 and you spend £20 to acquire the customer to buy the product, you’re left with £45. But this figure doesn’t include other expenses involved with the items such as its production, and if you live in the UK, VAT on the item.
You would need to assess all the costs from the creation of the product to it being delivered to the customer, to estimate a desirable customer acquisition cost.
How you can improve your CAC
Having your business operating to maximum efficiency is always desirable. But when we don’t quite hit the target, what can we do to improve?
Improving your customer acquisition cost doesn’t necessarily involve reducing your marketing expenses, more so with how you spend your marketing efforts. You want every marketing decision you make to be optimized for maximum conversions, and if your efforts aren’t converting then this is where you need to make changes.
Here are 3 ways you can improve your customer acquisition cost:
Optimizing your landing page
If your landing page is messy and unfocused, with sidebars and banners for added distractions, your potential customers aren’t going to be focused to make a purchasing decision. You’ve just wasted your time and money getting them to your landing page, for them not to take action.
Remove distractions and keep them focused on your product, it’s why they’re there.
To get maximum results you need to test what converts the best. It’s surprising how two different phrases (meaning almost the same thing) can get two different results. It could be something as simple as ‘Buy Now,’ ‘Sign Up’ or ‘I Want To Purchase;’ one could convert higher than the other.
The same applies to colours, this study found 51% of CTA buttons are green. Doesn’t mean you have to do the same, however, test it and see if you see higher conversions.
Optimize your marketing channels
This relates to where your brand or business is present, such as on social media, your email list and advertisements.
You should go through each marketing channel you’re utilizing and optimize your usage of them.
Social media plays a vital role in reaching new people who could in the future be a customer, it also acts as a platform for others to learn about your brand, your products and for you to showcase why people should choose your brand over your competitors.
But you need to choose which social media platforms to focus on wisely. Each platform is favourably populated with different demographics, which could result in your brand trying too hard to get customers from social media platforms that aren’t your target customer.
The same applies to your choice of ad platforms. When you understand your audience, you can figure out where they hang out online – then advertise on those platforms.
For example, if you’re selling facial cream for 40+ women, heavily targeting TikTok wouldn’t be ideal as this platform is mostly populated with those below the age of 25.
Your ad copy is critical too. Consider split-testing advertisements to see which one is converting best, it helps you learn the best way to spend your advertising money.
Having marketing attribution software in place to understand which ads are performing will be equally important.
How to calculate your CAC
Sales & marketing costs / new customers = CAC
$100 / 5 = $20 CAC