customer acquisition cost case study

Decoding CAC: An introduction to Customer Acquisition Cost (CAC)

One of the key metrics that captures the attention of marketers and entrepreneurs alike is customer acquisition cost (CAC). It's a metric that plays a pivotal role in determining the effectiveness and sustainability of a company's growth strategy. In this blog, we'll understand the complexity of CAC, exploring its definition, importance, calculation, and strategies to optimize it.

Table of Contents:

What is Customer Acquisition Cost (CAC)?

• How to calculate CAC
• Why is CAC important?
• Factors affecting CAC
• Improving Customer Acquisition Cost (CAC) with real-life examples

CAC cheat sheet for startups and SMBs

Customer acquisition cost (CAC) is a metric that measures the average cost of acquiring a new customer. It's essentially the total spend on sales and marketing efforts divided by the number of new customers acquired during a specific period.

How to calculate Customer Acquisition Cost (CAC)

The basic formula for calculating CAC is:

CAC = Total Sales & Marketing Costs / Number of New Customers Acquired

This includes costs such as:

Marketing expenses: Advertising, content marketing, social media marketing, search engine optimization (SEO), pay-per-click (PPC) advertising, etc.

Sales expenses: Salaries and commissions for salespeople, sales tools and technology, training, etc.

Other costs: Referral programs, public relations, events, etc.

Let's look at an example to illustrate Customer Acquisition Cost (CAC). Imagine an SMB sells workout equipment online. During a recent sales campaign, they invested the following:

Marketing expenses:

• $10,000 on social media ads
• $4,000 on search engine ads
• $2,000 on influencer partnerships

Sales expenses:

• $6,000 on salaries for sales representatives
• $2,000 on sales software

Through this campaign, they acquired 300 new customers. To calculate their CAC, they would use the formula:

CAC = Total Sales and Marketing Costs / Total New Customers Acquired

CAC = ($10,000 + $4,000 + $2,000 + $6,000 + $2,000) / 300

CAC = $24,000 / 300

Therefore, their customer acquisition cost for this campaign was $80 per customer.

This means they spent an average of $80 to acquire each new customer. Whether this cost is good depends on factors like industry benchmarks, customer lifetime value, profit margin, campaign specifics, and growth metrics. Achieving a low customer acquisition cost (CAC) isn't necessarily the primary goal. Instead, our focus should be on obtaining high-quality customers to ensure sustainable growth.

Why is Customer Acquisition Cost (CAC) Important?

CAC is a crucial metric for businesses of all sizes because it helps them understand:

The efficiency of their customer acquisition efforts: A low CAC indicates that you're effectively bringing in new customers at a reasonable cost. Conversely, a high CAC suggests that your acquisition strategies need refinement. High CAC relative to the customer's lifetime value can lead to unsustainable business models.

The profitability of customer relationships: By comparing CAC to customer lifetime value (LTV), you can gauge whether your customers are generating enough revenue to cover the cost of acquiring them. Your LTV should be several times higher than your CAC.

• The effectiveness of different marketing channels: Tracking CAC by channel can help you identify which marketing efforts bring in the most customers at the lowest cost.

Related content: A complete guide to customer acquisition strategies

Factors affecting Customer Acquisition Cost (CAC)

Several factors can affect a company's CAC, including:

Industry:  Different industries have different average CACs. For example, acquiring customers in the B2B space is typically more expensive than in the B2C space.

Business model: Subscription-based businesses often have lower CACs than businesses that sell one-time purchases.

Customer acquisition channels: Some channels, such as PPC advertising, can be more expensive than others, such as organic SEO.

• Target audience: Your target audience's demographics and online behavior can impact the cost of reaching them.

Improving Customer Acquisition Cost (CAC) with real-life examples

There are many ways to improve your CAC, such as:

Optimizing your marketing campaigns: Focus on targeting the right audience with the right message and using the most effective channels.

Case Study:  Fashion retailer ASOS partnered with an AI platform to target Facebook ads based on real-time purchase behavior and interests. This resulted in a 25% increase in click-through rates and a 10% decrease in CAC compared to traditional demographic targeting. 

(Source: Retail TouchPoints, " ASOS Leverages AI for Hyper-Personalized Facebook Ads ")

Improving your sales funnel: Make sure your website and sales process are optimized for conversion.

Case Study:  Insurance company Lemonade implemented AI-powered chatbots to answer customer questions and guide them through the quote process. This reduced the average sales cycle by 20% and lowered CAC by 15% due to increased online conversions.

 (Source: Forbes, " Lemonade Insurance: How AI Chatbots Are Transforming Customer Service ")

Offering customer referrals and incentives: Encourage existing customers to refer new customers.

Case Study:  Fitness brand Peloton partnered with TikTok to launch a campaign featuring user-generated content and influencer collaborations. This resulted in a 30% increase in website traffic and a 5% decrease in CAC from new customer segments attracted through the platform. 

(Source: Digital Commerce 360, " Peloton Partners with TikTok for First Brand Campaign ")

Building strong brand loyalty: Create a positive customer experience that will keep customers coming back for more.

Case Study: Gaming platform Roblox created a thriving virtual world where users can interact and create content. This fostered a strong brand community, leading to a 40% increase in user engagement and a 12% decrease in CAC due to viral word-of-mouth marketing. 

(Source: VentureBeat, " Roblox's User-Generated Content Strategy Fuels Growth and Engagement ")

Leveraging multi-channel marketing: Diversify marketing channels to reach a broader audience, potentially reducing dependency on one expensive channel.

Case Study:  Home improvement retailer Lowe's integrated its online and offline channels, allowing customers to seamlessly research products online and purchase them in-store or vice versa. This improved customer experience, leading to a 15% increase in repeat purchases and a 7% decrease in CAC due to higher customer lifetime value. 

(Source: Retailbrew, " Lowe's Omnichannel Strategy Drives Customer Satisfaction and Growth ")

Focus on customer retention: Focus on customer retention can indirectly impact CAC by increasing the customer lifetime value, making acquisition costs more justified.

Case Study:  Ecommerce platform Zalando revamped its loyalty program with tiered rewards and personalized recommendations based on purchase history. This resulted in a 20% increase in customer retention and a 8% decrease in CAC due to reduced churn and increased customer spend. 

(Source: Ecommerce News Europe, " Zalando Revamps Loyalty Program with Personalized Rewards and Recommendations ")

Step 1: Define your goals

Target customer: Who are you trying to reach? Understand their needs and behavior.

Acquisition channels: Which channels will you use to reach them? (Social media, content marketing, SEO, etc.)

Cost tracking: Decide how you'll track costs across each channel (e.g., ad spend, content creation costs).

Step 2: Calculate your current CAC

Total Sales & Marketing Costs (period) / # New Customers Acquired (period)

Step 3: Analyze & improve

Channel breakdown: Calculate CAC for each acquisition channel. Identify high-performing and low-performing ones.

Customer Lifetime Value (CLTV): Estimate the average revenue each customer generates over their lifetime.

Profit margin: Analyze your profit per customer. Ensure CAC is sustainable within your margins.

Optimize Spending: Allocate budget towards high-performing channels and adjust spending based on learnings.

Step 4: Continuously monitor and refine

Regularly track and update CAC for ongoing campaigns.

Experiment with new channels and tactics to find cost-effective acquisition strategies.

Use A/B testing to optimize ad copy, landing pages, and conversion funnels.

Benchmark your CAC against industry competitors to identify areas for improvement.

Bonus tips:

Focus on acquiring high-quality customers with long-term potential.

Leverage content marketing and referral programs for organic acquisition.

Automate lead generation and nurturing processes to reduce costs.

Use analytics tools to track key metrics and measure campaign performance.

• Remember, CAC is a dynamic metric—it should evolve as your business grows.

Mastering the art of customer acquisition is a continuous challenge. CAC stands as a compass, guiding companies through the intricate landscape of growth. By understanding, calculating, and optimizing Customer Acquisition Cost, businesses can not only survive but thrive in an increasingly competitive market. It's a continuous journey of refinement, adaptation, and strategic decision-making that ultimately paves the way for sustained success.

Here are some additional insights on CAC:

CAC isn't a one-size-fits-all metric: What's considered a good CAC for one company might be too high or too low for another. It's important to benchmark your CAC against your industry and competitors.

CAC should be tracked over time: This will help you identify trends and see how your customer acquisition efforts are improving.

• CAC can be used to make more informed investment decisions: For example, if you know that your CAC is high, you might decide to invest in marketing automation tools to improve efficiency.

Kiruthika Devi & Yash Gupta

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Related Posts

What is Customer Acquisition Cost | Benchmarks and How To Reduce It?

Customer Acquisition Cost (CAC) is the average amount of money it takes to acquire a new customer. It is an important metric for businesses to track because it can help them to understand the profitability of their CAC Benchmarks strategies.

But while in the chaos of making profit. Are you forgetting to calculate the customer acquisition cost?

Neglection can result in high CAC. It turns out that a company is spending too much money to acquire new customers, which can lead to losses.There are a number of factors that can affect CAC, including the industry, the product or service being sold, and the target market.

In this blog, we’ll give you a quick and comprehensive rundown of how to calculate Customer Acquisition Cost (CAC) and which industry benchmarks to compare it against.

What does CAC stand for?

Every customer comes at a price, and CAC is all about figuring out just how much money we have to splash on acquiring a customer. Customer Acquisition Cost (CAC) is the average amount of money a business spends to acquire a new customer. It is an important metric for businesses to track because it can help them to understand the profitability of their acquisition strategies. A high CAC can indicate that a company is spending too much money to acquire new customers, which can lead to losses.

Customer Acquisition Cost (CAC) is the money a business spends to get new customers. You want CAC to be lower than the Lifetime Value (LTV) of those customers – that means more profits!

When things are going great, CAC stays low, and LTV keeps customers happy and spending. But if CAC misbehaves, don’t worry – we’ve got the solutions!

Be smart, strategize, and conquer CAC with our top-notch advice. Keep an eye on the CAC-LTV see-saw and ride the wave of customer love to success!

How to calculate Customer Acquisition Cost

Let’s dive into the nitty-gritty of calculating Customer Acquisition Cost (CAC) step-by-step.

Step 1: Choose a Time Period Let’s say we want to calculate CAC for the last quarter (three months).

Step 2: Calculate CAC During the last quarter, our total marketing and sales expenses amounted to $15,000. This includes various costs like online ads, social media campaigns, and the salaries of the marketing team.

In the same three-month period, we acquired 100 new customers.

Step 3: CAC Formula Now, we plug the numbers into the formula:

Step 4: Analyse and Act In this example, the CAC is $150.

Now, let’s compare this with the Lifetime Value (LTV) of our customers. Let’s assume the average LTV of a customer is $500 (the revenue generated from a customer over their entire relationship with our business).

Since the CAC ($150) is significantly lower than the LTV ($500), we are in good shape! It means we are spending less to acquire each customer than what they eventually bring in as revenue. Profitable business moves, right there!

However, if our CAC were higher than the LTV, say $600, we would need to rethink our strategies. It might be time to optimise our marketing efforts, improve customer retention, or find cost-effective ways to acquire customers.

With this example, you can see how calculating CAC gives us valuable insights into the efficiency of our customer acquisition efforts. So, gather those numbers, crunch them like a pro, and let CAC be your guiding light towards business success!

Importance of Understanding Customer Acquisition Cost

Imagine you have a shop, and you want more customers to come and buy your cool stuff. But to get customers, you need to spend money on advertising and promotions, right? Understanding CAC is like knowing how much money it costs you to bring in each new customer. It’s like keeping track of how much you spend on advertising for every person who walks into your shop.

Why is this important?

Well, knowing your CAC helps you make smart decisions about where to spend your money. If your CAC is too high, it means you’re spending a lot on advertising, and it might not be worth it if customers don’t spend much in your shop.

On the other hand, if your CAC is low, it means you’re getting a good return on your investment, and customers are bringing in more money than you spend on ads. That’s the sweet spot!

So, by understanding CAC, you can figure out the best ways to attract customers while keeping your costs in check. It’s like having a secret weapon that helps you grow your business wisely and make sure you’re getting the most bang for your buck. Happy business sailing!

Case Study of Customer Acquisition Cost

Loxo is a B2B company that uses a dual-motion product-led / sales-led model to acquire customers. However, they were struggling to drive enterprise pipeline and revenue with this model. They were spending a lot of money on performance marketing to get as many free trial sign ups as possible, but this was not resulting in high conversion rates or closed deals.

Loxo shifted from lead gen to demand creation. This meant that they focused on creating demand for their product within enterprise accounts, rather than just getting as many free trial sign ups as possible.

Loxo to create a demand motion from scratch, which included:

• Developing a clear understanding of Loxo’s target audience and their needs.
• Creating content and marketing campaigns that were relevant to Loxo’s target audience.
• Measuring the results of the demand motion and making adjustments as needed.

As a result of this work, Loxo saw a significant improvement in their ARR, HIRO pipeline, and CAC. Their ARR increased by 45% quarter over quarter, their HIRO pipeline increased by 67%, and their CAC decreased by 23%.

This case study shows that it is possible for B2B companies to achieve significant growth with a dual-motion product-led / sales-led model. However, it is important to shift from lead gen to demand creation in order to be successful.

Here are some key takeaways from the case study:

• The winning strategy for B2B companies is to create demand for their product within enterprise accounts. This means focusing on creating content and marketing campaigns that are relevant to the target audience and their needs.
• Shifting from lead gen to demand creation can lead to significant improvements in ARR, HIRO pipeline, and CAC. This is because it helps to ensure that you are only spending money on marketing and sales activities that are likely to result in closed deals.
• It is important to have a clear understanding of your target audience and their needs in order to create effective demand generation content and marketing campaigns. This means understanding their pain points, their goals, and the challenges they are facing.
• You need to measure the results of your demand motion and make adjustments as needed. This will help you to ensure that you are getting the most out of your marketing and sales budget.

Factors to Consider When Calculating Customer Acquisition Cost

Variable costs.

When diving into the world of CAC calculations, you need to consider both variable and fixed costs. Variable costs are like chameleons – they change based on how much you sell or acquire customers.

For example, if you run an online store, variable costs might include the cost of goods sold 5(COGS), shipping fees, and maybe even affiliate commissions. These costs fluctuate depending on how much you sell or how many customers you bring in.

Fixed Costs

On the other hand, fixed costs are more like your trusty sidekick – they remain constant, no matter how much you sell or acquire customers.

Think of rent for your physical store, salaries for your employees, or website hosting fees. These expenses stick around regardless of how many customers come through the door or buy your products.

Cost Per Channel

Now, let’s talk about channels. No, not TV channels – we’re talking about marketing channels, like social media, Google Ads, or email campaigns.

Each channel has its own costs and effectiveness in bringing in customers. When calculating CAC, you’ll want to know how much you’re spending on each channel and how many customers you’re getting from each one.

By understanding the variable and fixed costs and analysing the performance of different marketing channels, you’ll have a clear picture of your CAC. This insight will guide you in making savvy decisions to optimise your marketing efforts and grow your business like a pro!

Estimating Customer Acquisition Cost Benchmarks

Industry averages.

When it comes to estimating Customer Acquisition Cost (CAC), it’s helpful to know how your numbers stack up against others in your industry. Industry averages act like signposts, showing you where you stand in the grand scheme of things.

Check out what similar businesses are spending to acquire customers. If your CAC is higher, it might be time to fine-tune your strategies. On the flip side, if your CAC is lower, kudos to you – you’re ahead of the game!

Goals & Objectives

Understanding your business goals and objectives is essential in estimating CAC benchmarks. Are you looking to maximise short-term profits or invest in long-term customer relationships?

For instance, if you’re aiming for rapid growth, you might accept a higher CAC initially. But if customer loyalty and retention are your top priorities, a lower CAC might be the way to go.

Assessing the Competition

Keeping an eye on your competitors is crucial in this journey. Analyse their CAC numbers and strategies to learn from their successes and mistakes.

If they’re doing better with a lower CAC, it’s time to hoist the sails and follow suit. But if they’re struggling with a higher CAC, you can steer clear of their missteps and set your own course to success!

By estimating CAC benchmarks based on industry averages, aligning with your goals, and scouting the competition, you’ll have a reliable map to guide you on your customer acquisition voyage. Now set sail and conquer the high seas of business with confidence!

Strategies for Reducing Customer Acquisition Cost

Let’s dive deep into these savvy strategies for reducing Customer Acquisition Cost (CAC) while keeping it conversational and informational.

Optimise the Sales Funnel Model

Picture the sales funnel as a fascinating journey that your potential customers embark upon. Your goal is to guide them smoothly from being curious wanderers to loyal patrons.

First up, lead generation – attracting those potential customers to your doorstep. To reduce CAC, focus on quality over quantity. It’s like fishing – you want to catch the big, juicy fish, not waste time with tiny minnows.

Once they’re in the funnel, don’t let them slip away! Plug those leaky holes where leads drop off. Nurture and engage them at every stage, like a friendly tour guide showing them the wonders of your products or services.

Utilise Automation Solutions

Now, imagine having a trusty assistant to handle the mundane tasks – that’s where automation comes in! With tech wonders at your fingertips, you can automate repetitive tasks like sending emails, updating data, and scoring leads.

Automation lets you focus on the human touch, building real connections with your leads and customers. It’s like having a team of tireless helpers while you steer the ship towards success.

Improve Your Lead Quality & Targeting

Time to become a customer magnet! But not just any customers – your ideal customers. To reel them in, you need to understand them like the back of your hand. Dive into market research to uncover their needs, desires, and pain points.

With this treasure trove of insights, you can craft tailored messages that speak directly to their hearts. When your targeting is spot-on, you’ll attract customers who are a perfect fit for your business, lowering your CAC like a pro.

Invest in Retention Efforts

Don’t overlook the riches that lie within your existing customer base. Happy customers are like precious gems – they shine and attract others to your business.

Invest in keeping your customers happy and coming back for more booty! Reward loyalty, offer exclusive deals, and show them you care. When they spread the word about your awesomeness, it’s like free marketing gold!

By optimising the sales funnel, embracing automation, targeting your ideal customers, and nurturing loyalty, you’ll become a customer acquisition wizard! These strategies empower you to work smarter, not harder, and sail towards cost-effective customer acquisition like a seasoned captain on a grand adventure!

To optimise the sales funnel model and move away from outdated attribution practices, companies need to shift their focus from department-centric measurement to buyer-centric measurement. Here’s how to make it happen:

• Identify Pipeline Sources: Look closely at the various triggers that bring buyers into your sales pipeline. These triggers are called “pipeline sources.” Instead of just measuring the number of leads, focus on understanding how and why the buyer entered the pipeline. These pipeline sources are indicative of buyer intent, and they can better predict sales efficiency metrics like win rate, sales cycle length, and pipeline velocity.
• Separate Attribution Model: Develop a separate attribution model that characterises the programs responsible for creating demand. This could be based on self-reported attribution data, where buyers indicate which marketing efforts influenced their decision-making process.
• Data-Driven Strategy: Use the data collected from pipeline sources and attribution models to optimize your entire revenue strategy. Instead of merely determining credit for teams and departments, this data-driven approach will guide strategic decisions and resource allocation more effectively.

Implementing this framework will bring several advantages:

• Improved GTM Alignment: The approach fosters better alignment between all GTM teams (Sales, Marketing, SDRs, Customer Success). Instead of fighting over credit, teams will collaborate to achieve common goals.
• Cooperation Over Competition: With all teams working together towards the same objective, cooperation replaces competition, creating a healthier and more productive work environment.
• Informed Decision-Making: Revenue leaders and strategists gain an entirely new view of performance, leading to better decisions and improvements in overall strategy.
• Accurate Forecasting: Revenue planning and forecasting accuracy will improve significantly, thanks to a more data-driven and comprehensive approach.
• Focused Strategy: With clear insights into what triggers successful pipeline entries, teams will know where to focus their efforts and which activities to prioritise.

As the business landscape evolves, it’s crucial to adopt a holistic, objective, and buyer-centric view of your GTM performance. By understanding buyer intent, optimising your revenue strategy, and fostering collaboration among teams, your company can sail towards greater success in the dynamic marketplace of 2023.

Types of Costs to Include in a Customer Acquisition Cost Formula

Ad spend includes the expenses incurred in advertising and marketing efforts to attract potential customers. It covers the cost of online ads, social media campaigns, and other promotional activities.

Employee Salaries

Employee salaries refer to the wages paid to the team members involved in acquiring new customers. It includes the compensation for marketing, sales, and other relevant personnel.

Creative Costs

Creative costs encompass the expenses associated with designing marketing materials, creating content, and developing appealing visuals to attract customers.

Technical Costs

Technical costs include expenses related to website development, software tools, and other technical resources used in customer acquisition efforts.

To gain deeper insights into Churn360, we recommend setting up a demo with one of our experts for a detailed walkthrough

Publishing Costs

Publishing costs involve the expenditures associated with distributing content, such as printing flyers, running sponsored posts, or sending out newsletters.

Production Costs

Production costs cover the expenses of creating products or services offered by the business.

Inventory Upkeep

Inventory upkeep includes the costs of managing and maintaining the inventory of products or services, ensuring they are readily available for customers.

By including these various costs in the CAC formula, businesses can accurately assess the investment required to acquire each customer. This understanding enables informed decision-making and optimization of customer acquisition strategies, leading to improved overall performance and profitability.

5 ways to reduce customer acquisition cost

1. optimise your sales and marketing funnel..

This means making sure that your marketing and sales efforts are aligned and that you are targeting the right people with the right message. You can also use automation to streamline your sales process and reduce the amount of time your sales team spends on administrative tasks.

2. Optimise your pricing strategy.

Make sure that your pricing is competitive and that you are not overpaying for your marketing and sales efforts. You can also use pricing to segment your customers and offer discounts to high-value customers.

3. Strengthen the effectiveness of sales and marketing spend.

Make sure that you are tracking the results of your marketing and sales campaigns and that you are making adjustments as needed. You can also use tools like A/B testing to test different marketing and sales strategies.

4. Quickly engage new customers and prospects.

Make sure that you are quickly engaging new customers and prospects with personalised messages and offers. This will help you to increase the chances of converting them into paying customers.

5. Invest in customer retention.

The best way to reduce CAC is to keep your existing customers happy and engaged. This will reduce the amount of money you need to spend on acquiring new customers.

By following these tips,You can reduce your CAC and improve your bottom line.

Share this article

Provide your email to be part of the beta progrom

Stay updated and be part of our beta program

Related Articles

Take the first step today.

See how Churn360 can help retain your customers

Learn / Guides / Customer acquisition guide

Back to guides

Customer acquisition cost 101: how to calculate and reduce your CAC

When it comes to acquiring new customers and growing your business, the old saying is true: you need to spend money to make money. But how do you know if you’re spending the right amount of money, on the right audience, and on the right channels?  

Last updated

Reading time.

While there’s no magical one-size-fits-all number for how much every company should spend on customer acquisition, there is a handy formula: customer acquisition cost . Calculating your customer acquisition cost lets you quantify exactly how much you’re spending to get new customers, helping you understand the impact of your marketing and sales efforts.

This chapter covers everything you need to know about customer acquisition cost— what it is , how to calculate it , why it matters , and how to reduce it —so you can get the greatest return on investment.

Reduce your customer acquisition cost with Hotjar

Understand what makes people convert—and what stops them—so you can create more engaging campaigns and win more customers.

What is customer acquisition cost?

Customer acquisition cost (CAC) is the amount of money you spend to get a new customer. It includes all of your marketing and sales expenditures, such as ad spend, employee salaries, tech budget, agency fees, and so on—basically, everything you spend money on to attract prospects and convert them into customers.

How do you calculate customer acquisition cost?

To calculate CAC, use the following formula:

CAC = cost of acquiring customers in a given period divided by number of customers in the same period

For example, if you spent $5,000 on sales and marketing in a month and got 100 new customers, your CAC for that period is $50.

You can measure marketing CAC by using only the marketing cost, or get the fully loaded CAC by including all of your acquisition spend (that is, absolutely everything it took to acquire that customer above and beyond your sales and marketing spend. This could include the cost of providing customer support to prospects during their free trial, office space for your teams to work, and administrative expenses).

How often should you calculate CAC?

You can measure customer acquisition cost across any given period: month, quarter, or year. The cadence you choose will depend on your specific goals. For example, if you’re experimenting with a new marketing tactic or sales approach, you may want to calculate your CAC more often at the beginning to understand how it’s working and allow you to course correct as necessary.

However, there are some best practices to bear in mind:

Generally speaking, if you calculate too frequently , such as every month, you’ll get a skewed short-term perspective. For example, valuable investments like adding an impactful tool to your martech stack or making a strategic new hire could look like a catastrophe when viewed short-term, even though they’ll have a long-term payoff. 

If you calculate too infrequently , such as yearly, you won’t be able to spot downward trends or issues until it's too late to fix them, meaning you could lose out on major revenue.

For many businesses, calculating CAC on a quarterly basis provides the right level of insight, allowing teams to see the bigger picture but still be responsive to any shifts before they become problems. 

What is a good CAC?

Your customer acquisition cost on its own is just a number. To really understand what it means for your business, you need to look at it in context alongside another metric (and fellow acronym): LTV.

Customer lifetime value , also known as LTV or CLV, is the amount of revenue a user is predicted to contribute over the entire course of your business relationship .

You’ll often see LTV mentioned alongside CAC because comparing these two numbers gives businesses an important insight into their profitability. For most businesses, the sweet spot is a LTV:CAC ratio of 3:1 . That means for every $1 you spend acquiring a customer, you get $3 in revenue.

If the ratio is too low (say, 1:1), you won’t be able to sustain growth: you’re spending as much to acquire a customer as they spend on your business, meaning there’s no room for profit.

If it’s too high (like 5:1 or higher), it could also be a sign that something is wrong. In this case, an extremely high LTV:CAC ratio indicates that you could be reaching more right-fit customers, and should consider increasing your marketing and sales spend to take advantage of this growth potential.

🤔 What’s the difference between CAC and LTV?

Customer acquisition cost reveals how effective your customer acquisition strategies are, while customer lifetime value is a good indicator of loyalty, retention, and customer satisfaction .

Both business metrics are important, and they’re particularly useful when used together. After all, a constant stream of new customers is no good if they just end up churning. Understanding CAC and LTV together helps you ensure your customer acquisition and customer retention strategies pay off.

3 important reasons to track your CAC

1. understand your business’s performance.

As we’ve just seen, customer acquisition cost is one of the most important SaaS metrics because it’s directly linked to your profitability and business growth. While it’s not the only thing to look out for, it’s a useful indicator of how well your marketing efforts pay off and whether your campaigns resonate with your audience. 

Monitoring your CAC can also signal wider business and industry trends, including external factors like seasonality or economic circumstances, that may affect your customer acquisition strategy.

2. See which channels and tactics perform best

You can use the CAC formula above to compare acquisition costs for different marketing channels and reveal which ones yield the highest return on investment. For example, if you find it costs more to acquire a customer from paid advertising than it does via organic social media, you may decide to invest more in your social media strategy. 

As you build out your data, you can also compare your CAC against your own internal benchmarks to see how the cost of customer acquisition has changed over time.

3. Help your budget and resources go further

With these insights, you can make data-driven decisions about how and where to spend your marketing budget for the greatest return on investment and share concrete data with stakeholders to get buy-in . 

By focusing on the acquisition channels and marketing strategies you already know work best for your business, you can double down on your successes to attract even more paying customers. This helps you run more effective marketing campaigns and improve efficiency while reducing overall acquisition costs. 

5 strategies to reduce your customer acquisition cost

1. understand your customers.

To acquire more right-fit customers, understanding your customer is the foundation for everything. The best and most important thing you can do to lower your CAC is research your customers to learn what they want, what they do, and how they feel —then use this real customer data to drive your decision-making and guide your customer acquisition strategy.

It’s also useful to understand the behaviors associated with both successful acquisition and customer retention , so you can work backward to replicate those wins. For example, does your research reveal that users who engage with content in their first 30 days are less likely to churn? Consider sharing more content during the acquisition stage to see if you can set them up for success even earlier.

💡 Pro tip: Hotjar has a number of tools that help you to understand, empathize with, and engage your prospects to turn them into customers, including:

📹 Recordings : watch playbacks of real people navigating your site to see exactly what they’re interested in, frustrated by, or having issues with. Filter your recordings by different segments—such as successful conversions or churning customers—to understand how different cohorts behave. Use these insights to create tailored campaigns and identify conversion blockers like bugs or UX issues that could impact acquisition. 

✍️ Feedback : discover how users really feel with in-the-moment feedback, captured while people explore your site. Spot areas for improvement on key conversion pages, or prompt people to rate their experience on a scale from 1-5 to get a pulse check on the customer experience as it impacts acquisition.

💬 Surveys : hear directly from your users with on-site and external surveys. Ask prospects what they’re looking for or find out what existing customers love about your site or product, and leverage these insights in your next marketing campaign to attract more like-minded people. Bonus: make creating and launching surveys even easier by harnessing the power of AI . 🤖

🎤 User interviews: automate the entire user research process with Engage , which enables you to perform in-depth user research. Recruit people from your own network or Hotjar’s pool of 200,000+ participants to get valuable qualitative data from your target audience, and combine it with quantitative data to create a winning customer acquisition strategy that lowers costs.

Hotjar Recordings shows you how real users navigate your site, providing valuable insights that help you improve customer acquisition (and lower CAC)

2. Optimize campaigns for your target audience

Once you have a clear picture of your ideal customer, use it to strategically focus your marketing efforts. “Make sure you only show your campaigns to your target audience,” says Andrew Davis, Director of Growth at Hotjar. “Don’t waste your budget showing ads to the wrong people.”

To do this, use segmentation to deliver the right messaging to the right audience, then draw on rich user behavior data to create a connected, cohesive customer journey. Create messaging or flows based on information such as user role, industry, or country to create even more targeted and engaging campaigns that really resonate with your target audience.

🔥 If you’re using Hotjar

Use the Hotjar + HubSpot integration to personalize your customer interactions even more. Bring behavior insights from Hotjar into HubSpot to segment marketing automations using more granular properties, trigger marketing flows based on user behavior, and empower your sales team with the context they need to close more deals.

3. Create simple conversion journeys

Improving your conversion rate using conversion rate optimization (CRO) tactics helps you turn a greater number of your hard-won visitors into customers, reducing your total customer acquisition cost. One quick way to do this? Make it super easy for people to convert. 

The exact way you do this will depend on your business, but essentially you want to reduce customer effort and create a seamless conversion process. Here are three ways to get started:

For product-led growth , try reducing the number of steps in your sign-up or onboarding flows

For sales-led growth , try optimizing the demo request experience to improve pipeline conversion

For direct-to-consumer or ecommerce businesses , try enabling shoppers to check out without needing to create an account first

💡 Pro tip: view session recordings to understand where and why people currently exit their journeys without converting. Filter to sessions with errors, u-turns, and rage clicks (i.e. repeated clicks on an element in a short amount of time that signify frustration) to quickly dig into potential issues.

4. Troubleshoot any blockers

Use funnel analysis to identify where users drop off in the customer journey. If you spot any leaks in your customer acquisition funnel , dive in to see what’s causing them.

Technical or UX issues are easy to miss but can significantly impact acquisition. Broken links or non-functioning buttons don’t just create a poor customer experience—they can even outright prevent conversions and negatively impact your CAC. For example:

We monitor our sales funnel to see where people abandon sign-up without converting, and one day we noticed a huge drop in conversions from our sign-up page. We discovered that the autocomplete feature was broken, so we fixed it, and conversions went back up immediately.

💡 Pro tip: use Hotjar Funnels to build and analyze a customer acquisition funnel so you can spot where and why users don’t convert. Quickly jump into the associated recordings to see exactly what your users saw and understand the behavior behind the drop-off—and identify what you need to do to fix it.

Use Hotjar Funnels to build and analyze your customer acquisition funnel to quickly spot drop-offs and conversions

5. Test and optimize

Customer acquisition is never one-and-done—and just because something works well doesn’t mean it couldn’t work even better.

Running experiments and regular A/B tests will reveal data-driven ways to improve the customer journey and optimize conversions. For example, does including social proof on your pricing page increase sign-ups? How about moving the call-to-action (CTA) button higher up your landing page? 

By A/B testing different variants, you’ll find subtle but powerful ways to enhance your conversion rates, allowing you to get more bang for your customer acquisition buck.

Combine Hotjar with your A/B testing tool of choice—like Unbounce or Optimizely —to understand not just which variant performs better, but why . View session recordings to see how users engage with different versions, and use Feedback or Surveys to get more specific user feedback on why they convert (or don’t).

Take the WTF out of reducing CAC with user behavior insights

By calculating and tracking your average customer acquisition cost, you’ll get valuable insights into the profitability of your business and make informed decisions that drive sustainable growth. And while attracting and converting the right users will always require an investment , comprehensive user research helps you reduce your customer acquisition cost while still growing your customer base. 

Use behavior insights to make data-driven improvements to your customer acquisition process to make every user feel like a million dollars—without breaking the bank.

What is CAC?

Customer acquisition cost (CAC) is the amount of money you spend to get a new customer. This usually includes your marketing and sales expenditure, such as ad spends and employee salaries, but you can also calculate a fully loaded CAC, which incorporates absolutely everything you spent money on to get a customer to the point of conversion (that is, all of your marketing and sales spend plus additional expenses such as the cost of providing customer support, office space for meetings and product development, and so on).

How is CAC calculated?

The customer acquisition cost formula is:

Cost of acquiring customers in a given time period divided by total number of customers in the same time period

This period of time can be monthly, quarterly, or yearly.

To understand whether your CAC is good, you need to consider it alongside another metric: customer lifetime value (LTV). A good LTV:CAC ratio is 3:1, which means you make $3 in revenue for every $1 you spend acquiring a customer. Ratios lower or significantly higher than this sweet spot can indicate problems that may negatively impact your business growth.

Acquisition funnel

Previous chapter

Customer acquisition tools

Next chapter

Customer Acquisition Cost: Case Study

• September 24, 2023

Download the dataset below to solve this Data Science case study on Customer Acquisition Cost.

Customer Acquisition Cost (CAC) is a critical metric for businesses that want to assess the efficiency and cost-effectiveness of their marketing efforts. It represents the average cost incurred by a company to acquire a single customer. Analyzing CAC helps businesses optimize their marketing strategies, allocate resources effectively, and improve their return on investment (ROI).

The dataset includes the following columns:

• Customer_ID: Unique identifiers for customers.
• Marketing_Channel: The marketing channel through which customers were acquired (e.g., Email Marketing, Online Ads, Social Media).
• Marketing_Spend: The amount of money spent on marketing for each channel.
• New_Customers: The number of new customers acquired through each marketing channel.

Your task is to:

• CAC values for each marketing channel.
• Data visualizations illustrating CAC by marketing channel.
• Identification of the most cost-effective marketing channel for customer acquisition.
• Insights and recommendations for optimizing marketing strategies based on CAC analysis.

References to Solve this Data Science Case Study

• Customer Acquisition Cost Analysis by Aman Kharwal

Recommended Case Studies & Datasets

Market Size of EVs: Case Study

• March 18, 2024

User Profiling: Case Study

• February 25, 2024

Optimizing Cost and Profitability: Case Study

• February 11, 2024

Discussion Cancel reply

Discover more from statso.

Subscribe now to keep reading and get access to the full archive.

Type your email…

Continue reading

Let's chat! When’s a good time?

Customer Acquisition Cost (CAC): Formula, Benchmarks & More

When validating a SaaS concept in its early stages, teams often struggle to see past the utility of the product — overlooking the aspect of profitability. While there’s no doubt that acquiring customers is crucial, placing all your emphasis on net new logos alone is not a viable growth strategy in the long term. 

Customer acquisition cost (CAC) plays an important role in determining the sustainability and scalability of SaaS businesses. It also helps identify areas of improvement and guide strategy. 

This blog highlights everything you need to know about CAC.

What is Customer Acquisition Cost (CAC) in SaaS? 

Customer Acquisition Cost (or CAC) refers to the total amount of money a company spends on marketing, sales, and other GTM activities to acquire new customers. 

The formula to calculate CAC is as follows:

Customer Acquisition Cost = (Sales expenditure + Marketing expenditure) / New Customers Acquired in a given period of time.

Here, sales expenditure includes employee salaries, sales tools & tech, etc. Marketing expenditure includes ad spend, content production costs, event expenses, etc. 

Note that CAC excludes repeat customers. It only accounts for new customers, not new orders from existing accounts. 

A lower CAC indicates that a company is acquiring customers at a more cost-effective rate. This generally implies a strong product-market fit and successful marketing and sales efforts. A higher CAC, however, suggests that the company might need to re-evaluate its GTM strategy.

Why is Customer Acquisition Cost Important In SaaS?

Here are some of the ways in which CAC serves as a powerful barometer for profitability, product-market fit, and overall strategic direction.

1. Gauge Profitability

CAC helps SaaS companies assess the balance between acquisition costs and revenue generated. A low (or lowering) CAC-to-CLV ratio helps galvanize the brand by signaling efficient, sustainable growth.

2. Evaluate Product-market Fit 

A high CAC often indicates misaligned PMF or efficient GTM efforts. This signal can then prompt course-correcting adjustments. Say, a company with a tiered pricing structure spends $1000 to acquire a new customer. However, 90% of its customers end up subscribing to the most basic plan, which is priced at only $150 per annum. At this rate, the company will need more than 6 years to recover the cost of the acquisition. 

In this instance, it may be time to re-evaluate the product offerings, and customer requirements and make adjustments that make the company more profitable. 

3. Optimize Resource Allocation 

Insights from measuring CAC can help inform efficient resource allocation. With a detailed analysis of how each channel contributes to customer acquisition, teams can optimize marketing and sales budgets to maximize return on investment.  

Say a company uses the following channels for customer acquisition: 

In this case, although events bring in the maximum number of acquisitions, content marketing provides the lowest acquisition costs. Hence, the company may want to consider investing more in content marketing efforts going forward. 

Should CAC Be Viewed In Isolation?

CAC should not be viewed in isolation. It's important for SaaS businesses to strike a balance between CAC and Customer Lifetime Value (CLV) as well as CAC payback period . 

You can justify a high CAC with a high CLV or a short payback period. Say, a company spends $5000 to acquire a new customer. If the lifetime value of this customer is $18,000, or it takes only about a month to recover the $5,000 through subscription or in-app purchases, the CAC is certainly justified as compared to a company that spends $100 dollars to acquire a customer but has an average CLV of $50. 

In other words, a company experiencing higher churn rates is bound to rely on low customer acquisition costs to become profitable. 

Additionally, CAC also varies widely based on industry standards (Purchase Frequency, Purchase Value, Customer Lifespan, Company Maturity, Length of Sales Cycle, etc.) 

Step-by-Step Guide to Calculating CAC for SaaS

Calculating CAC can be a nuanced task. Here is a step-by-step guide to help you through the process:

1. Identify all costs related to customer acquisition 

Make sure to only include expenses that directly contribute to customer acquisition.

Advertising Expenses

This includes the totality of ad spend across search ads, paid social, sponsored events, etc.  

Technological Investments

Technological costs include spend on marketing and sales technology that supports go-to-market initiatives. This consists of automation platforms, intelligence solutions, outreach tools, etc.

Note : This category should not, however, include software or technology that does not directly affect the sales funnel: say your internal collaboration or task management tools - Slack, Asana, Notion, etc. 

Employee Salaries

If you have a dedicated sales team working on outreach, their salaries should be factored in when it comes to CAC calculations. 

TIP : Most companies exclude salaries of the entire marketing team when calculating CAC. This is not the right approach to follow as marketing costs can add up quickly. The right approach is to include salaries of employees who come in direct contact with customers or have a direct impact on sales and acquisition. For example, a PPC or SEM expert should be factored into the calculations. Still, SEO experts or website developers who do not contact the customers directly, should not be included.

Content Marketing Costs

Content marketing costs encompass all expenses associated with creating new content assets across blogs, media, and more. For example, when producing a video, this includes the cost of purchasing equipment, setting up a studio, acquiring backdrops, obtaining editing software, and other related expenses. Remember: even if you hire a third party content producer, these costs should be considered.

2. Decide on a tracking period 

The tracking period is the timeframe over which you'll calculate your CAC. It's essential to choose a period that aligns with your sales cycle. For SaaS businesses, this could be monthly, quarterly, or annually, depending on how long it typically takes to convert a lead into a paying customer.

3. Calculate the number of customers acquired in your tracking period 

Count the number of new customers you've acquired during the chosen tracking period. This should include all paying customers during that time frame.

Note : The more accurate way to analyze customer acquisition cost is to track the costs and acquisitions over the length of a sales cycle in the industry. Say enterprise sales in the healthcare sector take about 10 months to close a deal and get a paying customer, then the CAC should be tracked for that period of time.

4. Divide your acquisition costs by the number of customers

The formula for calculating CAC is straightforward: CAC = Total Acquisition Costs / Number of Customers Acquired. Plug in the numbers: Divide the total acquisition costs (step 3) by the number of customers acquired during the tracking period (step 2).

Here's an example to illustrate these steps:

Suppose a SaaS company spends $50,000 on marketing and sales efforts in a given quarter. During the same quarter, they acquired 500 new customers.

CAC = $50,000 / 500 = $100 per customer.

Determine your total marketing and sales expenditure within a specific time frame. This time frame can be a month, quarter, year, or any other relevant period. Next, calculate the number of new customers acquired during that same time frame.

Utilize the customer acquisition cost formula to ascertain the average cost per customer, providing insight into your gross margin and how much you potentially earn per new customer.

CAC benchmark: “What’s a good customer acquisition cost?”

There isn't a one-size-fits-all benchmark for CAC, as it can vary significantly depending on factors like your industry, target market, business model, and growth stage. What might be considered a good CAC for one SaaS company might not be the same for another. That said, here are some general guidelines and benchmarks to use as reference:

CAC Payback Period

OpenView’s report on SaaS Benchmarks shows CAC Payback periods based on company size or annual revenue, with a focus on different customer segments:

 Source: SaaS benchmark report 2022 by Openview

The findings in the report are summarized as follows:

• VSMB/Prosumer (<20 employees): Good CAC Payback is around 9 months , while great CAC Payback is achieved in approximately 2 months .
• SMB (20-100 employees): A good CAC Payback period is 7 months , with a great CAC Payback of 4 months .
• Midmarket (101-1,000 employees): CAC Payback is typically around 14 months , with a great CAC Payback of 7 months .
• Enterprise (1,000+ employees): The average CAC Payback is 14 months , with a great CAC Payback of 9 months .

CLV: CAC Ratio

The CLV:CAC ratio is a more reliable metric when at least 1-2 agreement renewal cycles have occurred to establish a more consistent churn rate across renewal periods. It helps to gauge the return on investment when it comes to customer acquisition. 

According to a report by RevOps Squared, over the last three years, the benchmark for CLV: CAC ratio has varied between 3.6 times and 4.2 times , regardless of the company’s size, ARR, or any other revenue metrics. 

The report implies that for every $1 spent on customer acquisition, the business should ideally  generate revenue of $3.6 or $4.2.

NOTE: Both metrics should not be viewed in isolation. A company can have a high CLV:CAC ratio, but if the CAC payback period is much longer, say 24 months, the business does recover its initial cost of acquisition but it takes them 2 years just to break even.

Challenges With Calculating CAC

Calculating customer acquisition cost is simple in theory, but easier said than done. There are several nuances to account for and businesses face common challenges in calculating CAC.

1. Inconsistent Tracking Period

"Days to close" can significantly impact Customer Acquisition Cost (CAC). Typically, businesses opt to provide reports on a weekly and monthly basis. However, a challenge arises when attempting to make monthly reports, especially when the "days to close" metric stands at just 14 days. This situation implies that any new visitor acquired during the latter half of a month will only become a customer in the first half of the subsequent month.

In such a situation, you’ll be incorporating the costs incurred in Month 1 and revenue generated in Month 2, which can throw you off track. The best way to tackle this situation is detailed user journey mapping . Tracking a customer’s interactions from the very first touchpoint to the final is a great way to understand the sales cycle and determine the tracking period for CAC calculations.

2. Unreliable Attribution

What campaigns and content actually contribute to conversions and pipeline? Without understanding the impact of marketing and sales touchpoints on bottom line metrics, it’s difficult to attribute CAC accurately. 

The main challenge with revenue attribution is the nonlinear nature of customer journeys. When a visitor becomes a paying customer, it's rarely because of a single touchpoint. It's likely a result of many touchpoints: channels, campaigns, content, and people — working together to convince the buyer.

Without the right attribution tools, it's hard to understand and appreciate how each channel (whether it is organic or paid) contributes to revenue generation. 

3. Fragmentary Data and Analytics

Another challenge when calculating CAC is siloed data across various sales and marketing channels. It’s a tedious, time-consuming process to manually monitor KPIs and stay on top of channel-level performance. Again, without the right tools, the team’s focus may be redirected towards operational tasks such as reporting, and away from strategic decision making. 

Teams should spend more time making sense of their CAC and less time actually measuring it.

Related Articles

Integrating AI into B2B Marketing Strategies for Enhanced Customer Insights

5 Ps of Marketing Explained

Want to learn more about factors.

See how we can help your team over a quick call or an interactive product tour

Want to make the most of your LinkedIn ads?

See how Factors can help

Join our mailing list

Get the latest best practices in Marketing Analytics delivered to your inbox. You don't want to miss this!!

Complete Guide to Calculating and Reducing Customer Acquisition Cost

An in-depth guide to Customer Acquisition Costs: What it is, why it is essential, how to calculate it, how to reduce it, and how to drive growth.

Salesforce India

Share article.

• Link Copied

Customer Acquisition Cost (CAC) is more than just a buzzword. It is an essential customer metric to track in today’s hybrid business models. For example, consider this – as a business, you recently engaged an influencer to promote your services on social media, and the response has been great.

But are you able to objectively define ‘great’? Can you accurately track responses and return on investment (ROI) on this marketing campaign? Can you put a number on how much it ultimately cost you to influence someone to buy your services as a direct result of this campaign?

Most importantly, can you reduce the CAC and optimise spending while driving ROI?

27% decrease in customer acquisition costs

Deliver marketing success now

Let’s explore how calculating CAC will help you scale your business and acquire more customers whilst maximising profits. Let’s begin by breaking down the basics.

What is Customer Acquisition Cost?

Customer Acquisition Cost (CAC) is a metric that allows companies to measure the cost of acquiring a new customer. Clubbed alongside the customer lifetime value (LTV) metric, tracking CAC helps businesses measure the value generated by a new customer.

The metric involves considering all the expenses incurred while convincing customers to purchase products or services a business offers. This includes time and investment made on research, marketing, and advertising. Ultimately, enabling businesses to calculate the ROI of customer acquisition.

The resultant figures can help businesses make data-driven decisions on how much resources they need to spend on acquiring a particular customer.

How to calculate customer acquisition cost (CAC)

Once you have determined the reporting period for calculation (monthly, quarterly, or annually), you can apply the below formula: (Sales + Marketing Expenses) / Number of new customers acquired = Customer Acquisition Cost.

– The values in both fields must be within the reporting period selected

– In order to arrive at an accurate assessment of customer acquisition cost, sales and marketing expenses should also include indirect expenses like employee bonuses and commissions.

Customer acquisition cost example

Let’s take a look at two examples of how you can calculate CAC.

Example one: Retail

Assume that you run a retail store that sells bags. Last month, you spent a total of INR 16,00,000 on sales and marketing-related expenditures. This expenditure included paying your sales personnel, running training programs for the new employees, and executing an in-store influencer campaign to attract customers to the store.

As a result of your sales and marketing efforts last month, your store reported that new customers bought 250 bags. Your Customer Acquisition Cost is, therefore, INR 6,400.

INR 16,00,000 / 250 = INR 6,400

Example two: IT Services

As a help desk service provider, you have over 50 sales reps who help you close deals and acquire customers. Besides the expenses incurred for their salaries and bonuses, you also rank high on search engine platforms for “help desk service” and spend about INR 1,00,000 a month on Google Ads. Last month, your sales reps signed up 60 new customers (each customer’s lifetime value, according to the company’s customer retention calculation, is INR 10,00,000. Here’s what all of this means: Total salaries for sales personnel: INR 14,00,000 Total spend on search engines: INR 1,00,000 Total sales and marketing expenses = INR 15,00,000 New customers acquired in a month = 60 Total Customer Acquisition Cost = 15,00,000/60 = INR 25,000 Customer Value or Retention = INR 10,00,000. Therefore, for every investment of INR 25,000, you can generate a revenue of INR 10,00,000.

Why is Customer Acquisition Cost Important?

CAC is an important metric that helps you evaluate the performance of your sales and marketing campaigns. Determining your ROI on sales and marketing will enable you to make data-driven decisions on customer acquisition and customer retention .

As with the examples above, determining that for every investment of INR 25,000, you can generate up to INR 10,00,000 in revenue demonstrates the effectiveness of your sales and marketing functions.

More importantly, once you calculate and understand the costs of acquiring a new customer, you can fine-tune these expenses and reduce them to boost ROI.

You can even track CAC channel by channel. If you use multiple channels to acquire new customers, you can use CAC to determine how each channel performs and choose to invest more in ones that fare well. For example, the cost of acquiring a new customer could be higher via in-store campaigns than social media campaigns. In that case, you can pivot funds to social media to maximise returns.

Ultimately, understanding CAC helps maximise profits and profitability. For example, Silver Arrows, a franchise partner and dealer for Mercedes-Benz, drove down the cost per conversion by nearly 33% and increased revenue by INR 20,00,000 per month through data-driven marketing. By accessing performance data in real-time , the brand was able to continually fine-tune its marketing campaign for maximum impact.

How to use CAC effectively: Pair it up with Customer Lifetime Value (LTV)

CAC is an effective business metric that can help evaluate sales and marketing efforts. However, in order to make the most out of CAC, we recommend combining the metric with Customer Lifetime Value (CLV). Customer lifetime value is a metric that predicts how much total revenue a customer can be expected to generate for a business.

Here’s what you need to arrive at before you calculate your customer lifetime value (CLV)

Average order value : Calculate this number by dividing your company’s total revenue in a time period by the number of orders over the course of that same period.

Average order frequency : Calculate this number by dividing the number of orders over the time period by the number of unique customers who placed the orders during that period.

Average customer lifespan : Calculate this number by averaging the years a customer continues to place orders from your company.

To calculate the CLV:

• First, find the customer value by multiplying the average order value with the average number of orders
• Then, multiply this derived customer value by the average customer lifespan.
• The resulting number is the customer lifetime value (CLV)

Calculating CLVs will give you an estimate of how much revenue you can expect an average customer to generate for your company over the course of their relationship with you. Therefore, your business’s CLV to CAC ratio can give you an indication of a customer’s value relative to how much it costs to earn them.

Interpreting the CLV/ CAC ratios

Finding the right balance for a CLV/ CAC ratio is essential to successful investments. Ideally, it should take roughly one year to recoup the cost of customer acquisition, and your CLV to CAC should be 3:1, i.e., the value of your customers should be three times the cost of acquiring them.

If it’s closer to 1:1, that means you’re spending just as much money on attaining customers as they’re spending on your products or services. If it’s higher than 3:1, like 4:1, for example, that means you need to spend more on sales and marketing and could be missing out on opportunities to attract new leads.

With Salesforce Marketing Cloud, you can track all your sales and marketing efforts in one place. It could be your single source of truth where all the data on customers, from lead creation to conversion and also continued engagement post sales are available in a unified format. This can help various teams evaluate the marketing mix, assess channel effectiveness, access purchase history, explore upselling opportunities, and more.

Real-time dashboards can help monitor sales and marketing performance, enabling swift data-driven decision-making. The comprehensive 360-degree view of customer data on Salesforce can help determine the customer lifetime value more accurately than ever, helping minimise acquisition costs. Furthermore, by upselling to the existing customer base, organisations could offset the new customer acquisition costs as well.

How a CRM can help you improve and reduce customer acquisition costs

In order to improve your CAC, you need a scalable customer acquisition strategy . One that involves smartly utilising your CRM’s capabilities to support your metrics and gain insights.

You can start by identifying and fixing leaks within your sales and marketing funnels, curbing marketing efforts in low-performing channels, and scaling efforts in channels that have proven to generate high-quality leads . Here’s how a CRM can help:

• Prioritisation : With all your leads consolidated on one platform, you can prioritise leads and opportunities that will result in conversions based on previous interactions with your business.
• Interaction : Determine who, when, and how to engage with your customers so your optimal responses can boost customer acquisition.
• Maximisation : Maximise revenue opportunities by selling to existing customers. Identify all cross-selling and upselling opportunities with ease and smartly reduce CAC costs.
• Incentivisation : Incentivise existing customers to act as referrals to discover untapped opportunities within existing relationships.
• Optimisation : Optimise every sale by reducing the time to close by equipping your team with a 360-degree view of your customer, achieving great CACs, and even increasing CLV by providing delightful customer experiences.
• Personalisation : A customer-focused CRM will always capture customer data through every source. For instance, Salesforce enables a 360-degree view of the customer from data across channels to give sales reps the opportunity to customise interactions instead of pursuing a one-size-fits-all approach.

Ultimately, CRM can help you prioritise customer satisfaction to ensure repeat purchases from happy customers and strong word-of-mouth recommendations to bring in new customers. Unified data from a trusted CRM platform can help keep track of all relevant business metrics while you explore opportunities for upselling or acquiring new customers. It also helps in plugging leaks in your sales and marketing funnels, allowing you to save on customer acquisition costs.

In addition, dashboards can help monitor progress efficiently and course-correct based on real-time insights.

Customer acquisition cost in action

Let’s revisit a CAC in action, taking into consideration all the factors that affect it.

You own a jewellery store in your town. As part of your ongoing efforts to acquire new customers, you’re running targeted ads on Google. Let’s assume you are running three pay-per-click ads.

You’ve received 100 clicks on each of your Ads. Ad one costs you INR 50 per click, Ad two costs INR 100 per click, and Ad three costs you INR 150 per click. Let’s say ten customers have completed a purchase post by clicking on each ad.

That means you paid INR 5,000 for Ad one, INR 10,000 for Ad two, and INR 15,000 for ad three. If you divide this by the number of customers you’ve acquired from this campaign, your CAC is INR 500 in Ad one, INR 1000 in Ad two, and INR 1500 in Ad three. With just this level of information, marketers can take a call on which ads they have to continue to run and which ones they must pull the plug on.

But is this all? Not quite. In order to calculate the CAC in detail, you must also consider the costs involved in making the ad. Did you get your agency to do this? Did your in-house designer design the ad? How much are you paying your marketer to run this ad, monitor progress, etc.? It would be best if you also accounted for how much commission your sales team receives once the customer is acquired.

CAC ultimately consists of these factors combined with the total value your customer (CLV) brings to the company. Here’s what that looks like

CLV / CAC = CLV CAC ( Basically, lifetime value based on a particular acquisition cost)

Let’s say the CLV per customer is assumed to bring INR 5,00,000. Applying that calculation to our ad reveals that Ad one, while seemingly performing well at the beginning, costs INR 1,000, Ad two costs INR 500 and Ad three costs INR 333.

While it may seem like Ad three is the best option, in the long run, a low CAC to CLV ratio could lead to lower investments on acquiring new customers and therefore sustenance of the business itself.

Therefore, your best bet on reducing CAC and maximising profits comes by running Ad two.

Breaking down the components of CAC

Advertising Costs

• Digital Marketing : This includes costs of Google ads, display ads, social media marketing, native advertising, and search engine marketing.
• Traditional Marketing : Amount spent on print and outdoor advertisements like newspapers, television, banners, flyers, etc.
• Marketing Costs : Amount spent on digital marketing, influencer campaigns, event marketing, etc.
• Employee Wages : Consider salaries, incentives and commissions given to the sales and marketing staff.
• Software Costs : This includes costs involved in using a CRM, marketing and analytical tools, etc.
• Overhead Costs : Ensure you include hidden costs like travel expenses, publicity costs, money spent on free trials, events, dinners, etc.
• Outsourcing Costs : Include any costs incurred by outsourcing campaigns to freelancers, designers, etc.

Over and above these, ensure you calculate different types of CACs based on customer types, marketing channels, product lines, etc. Some of them are:

• Initial CAC : Cost of acquiring a customer for the first time
• Reactivation CAC : Cost of acquiring customers previously lost
• Renewal CAC : Cost of continuing to engage with existing customers
• Market CAC : Cost of acquiring customers in a particular market or region
• Customer CAC : Cost of acquiring customers within a certain profile like gender, age, etc.
• Product CAC : Cost of acquiring a customer for a specific product or service

Optimise Customer Acquisition Costs and drive growth

Actively measuring and tracking customer acquisition costs is important to scale effectively, no matter the size of your company. Leaders and management can rely on these metrics to make informed choices on advertising and marketing spending, while CAC metrics help investors evaluate how profitable your company can be.

CAC metrics can also help you allocate resources smartly to reduce hidden costs and maximise profits. Remember, if you are starting to calculate your CAC, include the lifetime value of customers into the mix to arrive at the true cost to the company.

From a funding perspective, for early-stage companies, general guidelines for the targeted CLV/CAC ratio are:

CLV/CAC: ~3.0: Ideal target range as the pace is sustainable (and reasonably profitable)

CLV/CAC: <1.0: Considered unsustainable and implies the company is facing difficulty monetising its newly acquired customers

CLV/CAC: >5.0: While the value received on a per-rupee basis is high, depending on the context, this may or may not be perceived as a good metric. If you are an early-stage start-up, consider spending more and reaching more customers than focusing on cost reductions.

When you prioritise your key business metrics, you and your management team will be able to spot and capitalise on hidden opportunities for growth. With Salesforce CRM , you can connect sales, service, marketing, commerce, and IT, to collect rich data across channels, monitor performance, and personalise experiences in real time.

The 360-degree view of your customer will help your sales and marketing team with the insights required to increase average order values, improve product margins, reduce customer attrition, expedite the sales cycle, and reduce acquisition costs. The result? Your business gets a competitive advantage that facilitates faster sales growth while maintaining cost efficiency.

Lower customer acquisition costs by 27%

Explore more with Salesforce Marketing Cloud

Just For You

5 Ways to Measure Customer Experience Right and Drive Efficient Growth

Send Your Emails at the Right Time: 3 Ways Data Can Increase Your Marketing ROI

Explore related content by topic

• Customer Journeys

Get our monthly newsletter for the latest business insights.

Introducing Moment Makers, a Series on Creating Long-Lasting Marketing Connections

New to Salesforce?

• Why Salesforce
• What is CRM?
• Explore All Products
• Customer Success
• Product Pricing

About Salesforce

• Security and Performance
• Salesforce.org
• Best CRM Software
• Sustainability
• Give us your Feedback

Popular Links

• New Release Features
• Salesforce Mobile App
• Business App Store
• CRM Software
• Salesforce Plus
• Salesforce for startups
• América Latina (Español)
• Brasil (Português)
• Canada (English)
• Canada (Français)
• United States (English)

Europe, Middle East, and Africa

• España (Español)
• Deutschland (Deutsch)
• France (Français)
• Italia (Italiano)
• Nederland (Nederlands)
• Sverige (Svenska)
• United Kingdom (English)
• All other countries (English)

Asia Pacific

• Australia (English)
• India (English)
• Malaysia (English)
• ประเทศไทย (ไทย)

© Copyright 2024 Salesforce, Inc. All rights reserved . Various trademarks held by their respective owners.

Average Customer Acquisition Cost: Benchmark by Industry and How to Improve It

Are you trying to find your business’s average customer acquisition cost?

In today’s competitive landscape, acquiring new customers is essential to any successful business’s or product’s growth . And the customer acquisition cost (CAC) shows you how effective you’re with your sales and marketing efforts to acquire new customers. Benchmarking this crucial metric against your industry helps you assess your standing relative to your competition.

In this article, we’ll delve into the ins and outs of CAC, its industry-specific benchmarks, and the proven practices to improve it.

• Customer acquisition cost (CAC) measures the total sales and marketing expenses for acquiring new customers.
• You can calculate CAC by dividing total expenses by the number of new customers acquired in a specific period.
• A good CAC is significantly lower than customer lifetime value (LTV) – around a 3:1 or 4:1 LTV: CAC ratio .
• The average CAC varies across industries. For example:
• SaaS Industry: $702
• B2B companies: $536
• eCommerce businesses: $70
• You can improve your CAC by:
• Analyzing the performance of the marketing channels and optimizing the ones with the best return on investments.
• Optimizing conversion funnels and increasing conversion rates by identifying and eliminating friction .
• Segmenting customers with data-driven insights and delivering targeted marketing efforts that cater to their needs.
• Adopting a product-led growth strategy to improve customer retention and maximize customer lifetime value.
• Offering personalized onboarding experiences to reduce the need for additional acquisition efforts.
• Implementing referral programs to incentivize existing customers to spread positive word-of-mouth marketing and lower your CAC.
• Book a Userpilot demo to see how you can acquire customers more efficiently for your SaaS.

What is customer acquisition cost (CAC)?

Customer acquisition cost (CAC) is a crucial metric that measures the total marketing and sales expenses a business incurs in acquiring a new customer.

How to calculate customer acquisition cost?

You can calculate customer acquisition cost by following these steps:

• Choose a specific time period. Depending on your business cycle, it could be a month, quarter, or year.
• Calculate the total cost of acquisition. This consists of the sales and marketing costs, including ad spend, promotions, etc, you incurred in the specific period.
• Determine the total number of new customers acquired during the particular time period.
• Divide the total expenses you calculated by the number of new customers you acquired in the same period.

For example, your SaaS company spent $10,000 on marketing and sales efforts during July. During the same period, it also successfully acquired 100 new customers. The customer acquisition cost is then ($10,000 / 100) or $100.

What is a good customer acquisition cost?

A good customer acquisition cost (CAC) can vary significantly across different industries. Evaluating CAC alone isn’t helpful because of the disrupted average in different industries.

However, if you want to determine if your CAC is good, you should compare it to the customer’s lifetime value (LTV) . While CAC represents the cost of acquiring a new customer, LTV measures the total value a customer brings to the business throughout their relationship.

The common benchmark for a good CAC is to keep it significantly lower than the LTV. Ideally, the CAC should be around 1/3 or 1/4 of the LTV. You should keep an LTV to CAC ratio of 3:1 or 4:1. It ensures that the revenue you generate from a customer exceeds the cost you incurred in acquiring them and leads to profitable customer relationships.

You can determine LTV: CAC ratio by simply dividing LTV by CAC.

Average customer acquisition costs by industry

We’ll now go through the average acquisition costs by industry customer acquisition cost.

Average customer acquisition cost for SaaS

The average customer acquisition cost within the SaaS industry varies greatly across different business sectors.

According to First Page Sage ,

• The average customer acquisition cost companies incur in the SaaS industry is $702.
• The highest customer acquisition cost is in the fintech industry, where businesses incur an average of $1,450 to acquire a new customer.
• In contrast, the eCommerce industry has the lowest customer acquisition cost, with an average of $274 to acquire a new customer.

Here is the full list of the SaaS industry’s average customer acquisition cost.

Average customer acquisition cost for B2B companies

The average customer acquisition cost for B2B companies is a combination of both organic and paid acquisition costs.

As per First Page Sage ,

• Among the B2B companies, the average customer acquisition cost is $536.
• The highest customer acquisition cost is in the higher education and college B2B companies, with an average of $1,143 per new customer acquired.
• And the eCommerce B2B has the lowest customer acquisition cost, with an average of $274 to acquire a new customer.

Here are the most B2B companies’ average customer acquisition costs.

Average customer acquisition cost for e-commerce businesses

The average customer acquisition cost for various e-commerce businesses is also different because of the diversity of their industries.

• Among e-commerce businesses, the average customer acquisition cost stands at $70.
• The highest customer acquisition cost is in the jewelry e-commerce businesses, with an average of $1,143 per acquisition.
• On the other hand, the food and beverage industry has the lowest customer acquisition cost, where it incurs an average of $53 to acquire a new customer.

The full list of e-commerce businesses’ average customer acquisition costs is as follows.

How to improve customer acquisition costs?

Let’s go through how you can improve your customer acquisition efforts.

Analyze and optimize performance of marketing channels

Analyzing and optimizing the performance of marketing channels is critical if you’re looking to improve your customer acquisition costs. By determining which marketing channels yield the best results, you can strategically allocate your resources and maximize the return on investment.

You can leverage analytical tools to track key metrics like conversion rates , click-through rates, cost per click (CPC), and cost per acquisition (CPA) for each marketing channel. These metrics provide valuable insights into the effectiveness of each marketing channel in acquiring new customers.

Then, you should analyze these metrics to identify your high-performing channels. You should make your marketing strategy by investing more resources in optimizing these successful channels’ performances.

Optimize conversion funnels to increase conversion rate

An optimized conversion funnel significantly increases the conversion rate, creates more qualified leads, and reduces the CAC. For it, you should first outline the key steps from the initial interaction to the final conversion in your conversion funnel .

Then, you need to meticulously analyze the conversion funnels to pinpoint the areas requiring improvement. It enables you to identify any user friction or conversion leakage hindering the smooth progression of potential customers through the funnel.

You should then take proactive action to eliminate these friction points and eventually improve the conversion rate.

Go product-led growth to maximize customer lifetime value

A product-led growth strategy emphasizes a self-service model that allows users to explore, try, and experience the product before purchasing it. Letting potential customers become familiar with the product’s value firsthand reduces the need for costly sales and marketing efforts.

The key to success with a product-led growth strategy lies in engaging users effectively within the product itself. You need to implement the right in-app engagement tactics to guide users toward the paid plans. It lowers your acquisition cost and ensures more user retention with increased customer lifetime value.

For example, you can set limits for feature usage and trigger upgrade messages when users reach limits. It helps the users realize the product’s full potential and pushes them to upgrade. Loom triggers upgrade messages when users reach certain feature usage limits and prompts users to take action.

Segment customers for targeted marketing efforts

Customer segmentation is a powerful strategy to curate targeted marketing efforts to satisfy more customers. You can use it to deliver personalized experiences and offerings to potential customers and easily convert them.

For customer segmentation, you should utilize data-driven insights about your potential customers. After identifying the ideal customer profiles, you should target and segment those potential customers more likely to convert.

In the case of SaaS companies, segmenting customers based on in-app activities is highly effective. It enables the companies to understand customers better and create marketing campaigns that cater to the segment’s needs .

Companies can then trigger in-app marketing messages to encourage potential customers to take specific actions that lead to conversion. As a result, the overall cost to acquire new customers decreases since the companies have more customers acquired.

Offer personalized experience during onboarding

You can personalize experiences during the onboarding process to meet potential customers’ preferences and needs. It creates a lasting impression on the users and increases the likelihood of conversion into paying customers.

Customers who get a personalized onboarding experience are more likely to find value and engage with the product or service. As a result, they are more inclined to stick with using your product or service and less likely to churn. This increased user retention directly translates to a higher chance of conversion and lowers CAC, as there is no need for additional costly acquisition efforts.

In the SaaS industry, it’s a common practice to use welcome surveys to collect custom profile data. Then, it’s easier to deliver personalized onboarding experiences based on their preferences, goals, and pain points.

Implement referral programs to acquire new customers

Offering incentives or rewards to customers who refer new users helps you tap into your existing customer base as a valuable source of new leads. Referrals from satisfied customers also carry higher trust and credibility to ensure a better conversion rate.

Referral programs let satisfied customers advocate for the product or service through word-of-mouth marketing . Customers with positive experiences and incentives to refer others become your natural brand ambassadors.

This organic advocacy not only lowers CAC by reducing the need for costly marketing efforts but also fosters a strong sense of loyalty among customers. As a result, you acquire new customers at a reduced cost while creating a better possibility of customer retention from the beginning.

Understanding and optimizing the average customer acquisition cost (CAC) is pivotal for your product’s smooth growth. Benchmarking your CAC against industry standards offers valuable insights into your position and helps you identify areas for improvement.

Want to get started with improving your average customer acquisition cost? Get a Userpilot Demo and see how you can acquire customers more efficiently.

Leave a comment Cancel reply

Save my name, email, and website in this browser for the next time I comment.

Get The Insights!

The fastest way to learn about Product Growth,Management & Trends.

The coolest way to learn about Product Growth, Management & Trends. Delivered fresh to your inbox, weekly.

The fastest way to learn about Product Growth, Management & Trends.

You might also be interested in ...

Customer retention management: benefits, metrics, strategies, and examples.

Saffa Faisal

Bottom-Up SaaS Business Strategy Explained

Aazar Ali Shad

8 SaaS Growth Strategies to Drive Business Success [+ Examples]

Mastering Customer Acquisition Cost (CAC)

Every company wants to acquire new customers. After all, a steady flow of new business is a healthy sign your marketing efforts are working and your product or service is catching people’s eye. But an expanding customer base doesn’t always translate into an expanding profit. If you’re spending more to attract each customer than they are bringing in, you may actually be losing money.

This is why it’s so important to keep track of your Customer Acquisition Cost. By calculating this metric, you’ll know whether you’re actually turning a profit – and will know when to make plans if you’re not.

What Is Customer Acquisition Cost?

Customer Acquisition Cost (CAC) is a business metric that tracks how much it costs you to bring in new customers. This helps you determine whether your organization is making a profit from the new business it generates, as well as measure the efficiency of your sales and marketing efforts.

CAC is often used alongside Customer Lifetime Value (LTV or CLV) in order to measure the value each new customer brings to a business. Ideally, CAC will be lower than LTV, meaning that the customer is bringing in more money than it cost to attract them in the first place. If CAC is higher than LTV, then your business is losing money. This may mean it is time to reduce acquisition costs by reevaluating your sales and marketing strategies.

Check our article on the LTV:CAC ratio for more.

How to Calculate CAC?

CAC is an important metric that is simple to calculate. To do so, just take your total sales and marketing expenses, then divide it by the total number of new customers. Here is the CAC calculation:

Total sales and marketing costs ÷ Total # of new customers = CAC

For example, if you spent $5,000 in the past month in customer acquisition and brought in 250 new customers, then your CAC would be $20.

Let’s look a little closer at the underlying metrics used in this formula.

Total Sales and Marketing Costs

This refers to whatever money you spent explicitly on acquiring new customers. Typically, it will encompass your marketing and sales costs – including program and ad spend, marketing campaigns, bonuses and sales commissions, employee salaries, and so forth. However, you should be careful to separate out the money spent on attracting new customers versus the money spent on retaining existing customers.

Total Number of New Customers

The key word here is “new.” Because you are measuring the cost of customer acquisition, you should only be counting the total number of customers you have recently converted.

Time Period

Although not an explicit part of the formula, you should also consider the period in which you are measuring CAC. This will affect both your total number of new customers and your sales and marketing costs. Typically, businesses will measure out CAC either monthly or annually, as this allows them to compare it against Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR).

Alternatively, you could use the length of your sales cycle. Especially for SaaS companies, new customers are often brought in as a result of leads sourced from several months prior. This means that measuring out your CAC month to month may not accurately reflect the performance of your sales and marketing efforts. Instead, broadening it to capture the correct timing of your sales cycle may give you much more useful information.

Why Is Customer Acquisition Cost Important?

CAC is so useful because it can quickly tell you about the health of your business. While it can’t tell you much on its own, when measured against revenue-based metrics like LTV and MRR, it is a great way to assess both the future profitability of your business and the effectiveness of your sales and marketing efforts.

Here are some other ways measuring CAC can help your business:

1. It helps determine and optimize your payback period

Your payback period is the amount of time it takes for you to recover the costs of acquiring new customers.

Typically, the goal is to make this period as short as possible. The sooner you can pay back your acquisition costs and start earning profit from each of your customers, the sooner you can start reinvesting that money back into your business.

By highlighting the length of this period, CAC helps you take the first step toward identifying opportunities to increase the profitability of your various channels and make your sales and marketing efforts more efficient.

2. It simplifies decision-making

CAC is much more than a number. By measuring out and allocating a customer acquisition cost of your various marketing efforts, it can simplify the process of determining what is the most effective method of attracting customers.

For example, let’s say you are running three different ads. Each ad has received 50 clicks and converted 10 customers. Without looking any further, it would seem that all three are identical. But when we look at the cost of each ad (measured as Cost Per Click, or CPC), it begins to look different:

Ad 1: $5 CPC x 50 = $250 ÷ 10 customers = $25 CAC

Ad 2: $7.50 CPC x 50 = $375 ÷ 10 customers = $37.50 CAC

Ad 3: $10 CPC x 50 = $500 ÷ 10 customers = $50 CAC

Even though each ad converted the same number of customers, you spent significantly less per customer using the first ad. By considering marketing spend in relation to the number of customers, CAC can help make difficult decisions much easier.

3. It can help you focus on the long-term

In general, a lower CAC is better for your business – but it’s also important to remember that not all costs are bad. By pairing CAC with LTV, you can optimize your sales and marketing spend to maximize your long-term profitability.

Let’s consider our ad example again. Although the third ad had the lowest CAC, what happens if each ad is targeting different customer segments. We’ll call these segments Mini, Mid, and Max. Because these each of these segments spend different amounts, they have different LTVs:

Mini (Ad 1): $1,000 LTV

Mid (Ad 2): $2,000 LTV

Max (Ad 3): $4,000 LTV

You can compare LTV with CAC by looking at their ratio . To do this, simply divide LTV by your CAC:

LTV ÷ CAC = LTV/CAC Ratio

Using this formula, we can clearly see which has the most profitable ratio:

Mini (Ad 1): $1,000 LTV ÷ $25 CAC = $40

Mid (Ad 2): $2,000 LTV ÷ $37.50 CAC = $53.34

Max (Ad 3): $4,000 LTV ÷ $50 CAC = $80

So for every dollar you spent on advertising to the Mini customer segment with the first ad, you received $40 back. In contrast, you got slightly more back with the Mid segment using the second ad, and twice as much back with the Max segment using the third ad. In other words, although the third ad had the highest CAC, it generated twice as much profit.

How to Assess & Reduce CAC

Ideally, you want to have a LTV/CAC Ratio of about 3:1. This means the cost of acquiring a customer will only be one-third (or less) of their eventual value.

That 3:1 ratio is often considered the sweet spot to balance investing more in acquisition and keeping it profitable.

Over 3:1: you could spend more on acquisition and might leave growth opportunities on the table

Below 3:1: you either need to reduce CAC or increase LTV as your current costs of acquiring a new customer are making it hard to turn a profit

Knowing how to drill down into this number further can reveal new acquisition strategies that optimize your sales and marketing spend, as well as increase profit. Here are some methods you can use to start analyzing and reducing your CAC:

Segment your CAC. Making your CAC more specific can help you measure the performance of individual segments, identify possible issues, and discover opportunities. There are countless ways you can do this. For example, you could measure the cost of renewing or reactivating customers, the cost of acquiring customers within a specific geographic region, or the cost of acquiring customers for specific products.

Optimize your funnel. Make sure your sales team isn’t wasting time or money chasing down leads that go nowhere. You can do this by analyzing, understanding, and quantifying every step of the conversion process. It should be as simple as possible to convert prospects, website visitors, and other leads into customers.

Reassess your pricing strategy. Are you leaving money on the table? Are there any unrealized opportunities to turn a profit? It may take some experimentation to get right – you don’t want to repel potential customers with high prices or anger existing ones – but optimizing your pricing in order to earn more cash upfront can be a quick way to reduce your CAC.

Implement a customer referral program. Word of mouth has long been the most effective way to bring in new customers. A referral program helps you take advantage of this. Make sure you give your existing customers rewards that will incentivize them to bring you leads, and you can start converting and acquiring new customers at little to no cost.

Frequently Asked Questions

What is an acceptable cac for my saas business.

The ideal CAC varies by industry and the nature of your product, so it's essential to benchmark your CAC against industry standards as well as your own historical data. Generally, a lower CAC means a more efficient sales and marketing process and healthier margins, but it's important to balance reducing CAC with maintaining growth and customer satisfaction .

How does Customer Lifetime Value (LTV) relate to CAC?

Customer Lifetime Value (LTV) is the total revenue you expect to receive from a customer throughout their relationship with your company. A healthy LTV/CAC ratio indicates that you're acquiring customers at a cost that makes sense for your business, taking into account the revenue they'll bring in over time. Aim for an LTV/CAC ratio of 3:1 or higher to ensure long-term profitability.

Should I cut my sales and marketing budgets to lower CAC?

It's important to evaluate your sales and marketing efforts to ensure they're efficient and targeted, but drastic budget cuts can have negative consequences on your customer acquisition and overall growth. Focus on optimizing your sales and marketing strategies , identifying inefficiencies, and improving targeting to reduce CAC while maintaining healthy growth.

The only spreadsheet with built-in connections to any database, versioning, and collaboration.

The Hard Truth About Acquisition Costs (and How Your Customers Can Save You)

Published: August 02, 2023

Trust in businesses is eroding. Customers are impatient. Marketing is getting expensive. Sales is more challenging, and to top it all, the math behind most companies' acquisition strategies is simply unworkable.

The state of customer acquisition is appalling. So, what's your only point of leverage? An investment in customer service.

In this post, we'll delve into the hard facts about the difficulties of attracting new customers and how you can leverage your customer service to grow your business despite those challenges.

Table of Contents

Consumers don't trust businesses anymore.

Acquisition is getting harder., your customers are your best growth opportunity..

• Putting It All Together: The Inbound Service Framework

The way people interact with businesses is changing negatively. The internet's rise three decades ago changed the business landscape more than anyone could have imagined in the 1990s. And now it looks like the internet itself is changing.

The rapid spread of misinformation, spam, and unreliable websites has made people doubt every piece of information they find online.

A study conducted by G2 on 1000+ B2B buyers shows a massive drop in buying sources.

Image source

When buying software, buyers' reliance on:

• The company's website declined by 5%.
• The company's sales team declined by 4%.
• Review sites increased by 5%.

One main reason is that consumers don't trust information about the business and software. Every one in two respondents said they couldn't find credible information about the company anywhere.

The content isn't specific to their industry, vendor websites are unreliable, and it's hard to find independent content to support them.

A bigger problem is that business leaders have no idea. They overestimate how much they're trusted. A PWC study shows a 57% gap between how leaders estimate versus how much consumers really trust them.

We used to trust salespeople, seek out company case studies, and ask companies to send us their customer references — but not anymore.

Today, we trust friends, family, colleagues, and look to third-party review sites like Yelp, G2Crowd, and Glassdoor to help us choose the businesses we patronize, the software we buy, and even the places we work.

The rapid spread of misinformation, concerns over how online businesses collect and use personal data, and a deluge of branded content all contribute to a fundamental shift — we just don't trust businesses anymore.

Consumers are also becoming more impatient, more demanding, and more independent.

According to The State of Customer Service report published by Netomi:

• 39% of people have less patience now than before the pandemic.
• 43% of consumers find long wait times frustrating.
• 3 in 5 people have hung up on an agent at least once out of frustration.
• Customers will wait 2 minutes for a call with an agent.

Modern consumers are also unafraid to tell the world what they think.

More than half (53%) reported sharing a negative experience with a company's customer service, which isn't entirely their fault because 62% also reported getting ghosted by the agent.

Your customers need you less than they used to. They learn from friends, not salespeople. They trust other customers, not marketers.

The erosion of consumer trust is a complicated issue for companies to grapple with. But as if that wasn't enough, the internet, which has always transformed the traditional go-to-market strategy, is moving the goalposts again.

What do I mean?

Let's break this down into two functions: Marketing and sales.

1. Marketing is more expensive.

We've taught inbound marketing to many companies and built software to help them execute it. Inbound marketing accelerated business growth through a repeatable formula:

• Create a website.
• Create search-optimized content that points to gated content.
• Use prospects' contact information to nurture them to the point of purchase.

This still works, but the market is experiencing five trends that have made it harder for growing businesses to compete with long-established, better-resourced companies.

Trend 1: Google is taking back its real estate.

Much of modern marketing depends on getting found online.

Without the multimillion-dollar brand awareness and advertising budgets of consumer goods titans, a growing business can best compete by creating content specific to its niche and optimizing it to appear on search engines.

For years, driving traffic from search engines like Google was easy.

Not anymore.

Google, the arbiter of online content discoverability with a 93% market share , has made significant changes in the last few years, making it harder for marketers to run this model at scale without a financial investment.

First, Google is reclaiming its traffic through featured snippets and "People Also Ask" boxes. Here's how Google displays the necessary information as a featured snippet to stop users from leaving the platform.

Then just below it, you see "People also ask" boxes, a different feature snippet permutation. These display questions related to your original search, live on the SERP, and are expandable with a click, like so:

Each time you expand a "People also ask" section, Google adds 2-4 queries to the end of the list.

What's the effect of both?

A study by EngineScout says featured snippets and "People also ask" boxes got 35.1% and 6% of total organic clicks, respectively. Meaning you not only compete for the first position but also for featured snippets.

Second, Google changed its search engine results page (SERP), moving search ads from a sidebar to the top four slots. Organic results fall much further down the page, and many times, they disappear entirely.

Search results often show YouTube videos — mostly for tutorials or how-to queries.

The third and newest of all: Generative AI .

Google has integrated AI and chat in SERPs that might replace featured snippets and "People also ask" boxes, but the catch is — you can also ask a follow-up question.

If you need more clarity, there is no need to click on the link to read the post; simply ask a follow-up question.

Of course, people can still click on links, but clicks are definitely going to go down.

Voice search adds a fourth wrinkle to these shifts — the winner-takes-all market.

As voice search has increased ( 50% of U.S. audiences use voice search ), it's become increasingly important to become the answer, as voice assistants only provide one result when asked a question.

Overall, Google is constantly evolving (making it difficult for companies to drive traffic), and if it's your only acquisition strategy, you need to think twice.

Search won't ever become purely pay-to-play. But in a world where screen real estate is increasingly dominated by sponsored content, marketers need to factor paid tactics into any organic strategy.

If ads are shown before organic listings, bidding for the right keywords may be a better investment.

Trend 2: Social media sites are walled gardens.

A decade ago, social media sites were promotion channels that served as a path between users and the poster's site.

It was straightforward — people would discover content on Facebook, Twitter, and LinkedIn, then click through to content (usually hosted on another site).

Today, social media sites are walled gardens. Algorithms have been rewritten to favor onsite content created specifically for that platform.

• The Hootsuite team found that posts without links had six times more reach than those with links.
• Elon Musk recently announced that verified account owners can now upload 2-hours videos on Twitter.
• The average organic reach on Facebook is only 5.2%.
• And Instagram, Pinterest, and TikTok's feeds are filled with more ads than ever.

Twitter Blue Verified subscribers can now upload 2 hour videos (8GB)! — Elon Musk (@elonmusk) May 18, 2023

The reason? These social media sites want to keep users on their platforms to earn ad income. Your branded content will have a harder time competing with other brands and paid ads.

Does that mean you should give up on social media? No, it won't do you any good because there's a brighter side to it.

Amazon used to be a great starting point for search, but our recent study says differently. 80% of marketers said consumers buy products directly from social media apps more often than brand websites.

So you don't need to give up on social media but start building your audience by publishing onsite content consistently.

Because as long as social media sites can monetize their traffic, they have no incentive to return to the old passthrough model.

Today, Facebook is a destination. Twitter is a destination. LinkedIn is a destination.

It's no longer enough to create content for your site, then schedule out promotions across channels that point back to that content — it'll only limit your reach, and you'll be stuck wondering why.

Savvy marketers know their ideas must be channel-agnostic and channel-specific.

As Alison Coleman , Zoom's Social media manager, says:

"We're excited to focus more on each social platform with its dedicated strategy, designing content to engage directly with in-feed.

The days of repurposing content are not necessarily over, but tailoring how we tell the same story on different platforms, to different audiences, with a different approach, is something we are excited to prioritize in our content."

Investing in product-related content has been a great help in boosting sales. She continues, "Product tips are a core part of our editorial calendar and what our audiences engage with most — but how we share this differs by platform."

To get the most out of a piece of content, its core concept must perform well across multiple channels, but marketers have to do more upfront work to create separate versions of this content to best suit the channel on which it's appearing.

Trend 3: It's getting more expensive to do marketing.

Search and social media titans have moved their goalposts to create a more competitive content discovery landscape. At the same time, barriers to entry on these platforms are getting higher in two ways:

1. Organic acquisition costs are rising.

SimplicityDX's recent study shows a 222% increase in customer acquisition costs in the last eight years in the ecommerce industry.

Why is this happening?

Ishaan Shakunt , founder of Spear Growth , shares it's not because of one or two reasons. Many things are happening in the background. He says, "It's difficult to understand why it's happening because calculating blended CAC isn't easy."

You can't measure organic and paid CAC combined (blended CAC), as evaluating both at a specific timeframe is difficult.

• Paid is simple — it stops working the moment you stop ads.
• Organic results are compounded, but they take considerable time.

So you can't estimate organic from when it started working or which campaigns brought results and compare it against paid. According to Ishaan, calculating paid CAC is easier — so let's go with this one.

He points out three main reasons why paid CAC is increasing, which also support our claims from above:

• Organic isn't performing well. A decade ago, organic used to work well. Brands could drive high traffic by placing a few keywords here and there — not anymore. Today, algorithms are intelligent, SEO is difficult, competition is higher, and SERPs have less space.
• Major social media platforms don't work anymore. Every five or ten years, we see this trend, a new marketing channel appears, it suddenly becomes all the rage, and when it's reached its height — saturated with many competitors — it stops working. Examples are Snapchat, Instagram, and TikTok.
• Market share is diversifying . Earlier, most market shareholders were top brands from industries. Small brands weren't considered. For example, Adobe Photoshop for photo editing. Today, the market share is evenly spread across multiple competitors — Adobe has many competitors, such as Canva, GIMP, and PicMonkey. The same is true for other industries.

To compensate for these changes, more companies are moving towards paid ads. They're now competing for paid rankings by bidding on keywords — resulting in paid CAC increasing.

2. Content marketers are commanding higher salaries.

It's not only harder to get value from content, but it's also getting more expensive to create it. Superpath examined the rise of content marketers' salaries by year — median salary has grown steadily.

In fact, senior marketing managers saw an average salary increase of 15.4% before inflation — changes in the content marketing profession partly explain this rise.

Google's changing algorithm requires more specialized knowledge than ever.

Not only are there specific optimization best practices to win featured snippets, but Google's current algorithmic model also favors sites architected using the topic cluster model.

Depending on the size of your site, this can be a massive undertaking — at HubSpot , it took us over six months to fully organize our blog content by this model.

Stand out in the market. Savvy marketers know that with AI, the quantity of content may increase, but the quality will decrease.

They're ready to increase their content marketing budget to produce human-generated, original content to stand out.

Trend 4: GDPR

The following is not legal advice for your company to use in complying with EU data privacy laws like the GDPR. Instead, it provides background information to help you better understand the GDPR. This legal information is not the same as legal advice, where an attorney applies the law to your specific circumstances, so we insist you consult an attorney if you'd like advice on your interpretation of this information or its accuracy). In a nutshell, you may not rely on this as legal advice or a recommendation of any particular legal understanding.

Eroding trust in businesses has much to do with how they used to collect their customers' personal information. 76% of consumers reported having no idea what companies do with their data.

It's not that consumers aren't aware of this — a whopping 79% believe it's essential for a company to protect customers' data to gain their trust.

That's why the General Data Protection Regulation (GDPR) passed by the European Union (EU) imposed new regulations on how businesses are allowed to obtain, store, manage, or process the personal data of EU citizens.

Businesses now need to state transparently what data they're collecting and why. And consumers can request businesses to delete their data at any time.

Did it have adverse effects? HubSpot CMO, Kipp Bodnar , doesn't think so; he says, "A privacy-first approach won't hurt your customer relationships. It'll transform them."

Want proof? Using HubSpot and Google's integration for a better privacy-first approach, Zoe Financial saw a 200% increase in revenue — it only enhanced customers' trust in the company.

Trend 5: It's difficult for customers to try the product.

The B2B industry needs much improvement because buyers don't have a frictionless experience when buying software. Let me share the insights from ChiliPiper's B2B Buyer Journey report.

Only 11% of companies have a calendar scheduler on their website. For most companies, their buyers don't have a direct way to book a meeting with sales teams.

Almost every B2B deal is made after one or more meetings with the company sales team, and by not having a meeting scheduler, these companies are elongating the sales cycle .

Only 17% of companies use interactive product demos on their website — which is one of the primary reasons why buyers hesitate to buy.

Buyers want to try the product on their own before buying it. They don't want to wait two days to hear back from the sales team to give them a product demo.

To back it up — a TrustRadius report shows product demos are the most helpful when making a purchase decision.

Companies need to find a way to make the buying experience seamless.

• They must show pricing on their website so buyers can understand their budget.
• They must include interactive product demos so buyers can try the product.
• They must include a calendar scheduler so buyers can book a meeting immediately.
• They must reduce the response time so buyers don't feel they're waiting forever.

In combination, these five trends mean that:

• It's harder to stand out on a crowded internet.
• It's more expensive to find talent and produce content.
• Algorithmic changes will force investment in a multichannel marketing strategy.
• Your website isn't doing a great job attracting and helping customers.

So it's getting harder to get prospects to your site, and when some do get on your site — you don't make it easy to move forward.

But for those few who do get in the door and schedule calls, closing them should be a standard operating procedure, right? Not quite.

2. Sales is more challenging.

Every year, HubSpot surveys thousands of marketers and salespeople to identify the primary trends and challenges they face. And year after year, salespeople report that their jobs are becoming more difficult.

HubSpot's study states that standing out from the competition is the top challenge for most salespeople.

Competition is fiercer than ever, and if you don't have unique features/values, it's difficult to keep prospects engaged throughout the sales process.

It's not entirely the salespeople's fault, though — the market is saturated more than ever. With new companies launching daily and features getting replicated, it's difficult for salespeople to stand out, and they struggle to get attention.

Prospecting is the most challenging part of the sales process. Salespeople reported spending 12+ months researching a prospect to understand their pain points better.

Another problem is the contact method salespeople are using. Prospects don't want to be cold-called out-of-the-blue; they want their sales agents to build relationships with them.

New LinkedIn research suggests warm calling is one of the best ways to engage with buyers. As a result, salespeople (75%) spend more time researching prospects.

But keeping tabs on different prospects can become challenging when you're doing it on a scale, especially when you're not using a CRM to track everything.

The key is to strike a balance. Peter Mollins , CMO of SetSail , says:

"Cracking into having a meaningful conversation with your prospect when the market is blaring at them is incredibly difficult.

And that's why it's so vital to engage prospects on their terms: reaching them when they're ready, in terms they care about, that are impactful, clear, and concise."

It keeps getting worse for salespeople.

Because decision-makers of companies keep changing frequently. A G2 report reveals that 68% of salespeople experienced decision-makers changing multiple times during the software buying process.

The amount of time, effort, and research salespeople put into building a healthy relationship with a prospect becomes vain just because decision-makers change.

Now, they must start from scratch, which elongates the sales cycle.

The same study shows that people want salespeople to show more involvement in the research phase, but they show up only in the buying phase.

Somehow, salespeople fail to understand where their prospects need their help. And since the help isn't provided correctly, buyers rely on self-research, influencer recommendation , and their networks for an opinion.

But, it's not salespeople only — it's also consumers. People are more impatient than ever, as if they don't want to take their sales agent seriously.

Salespeople reported having 10-15% of sales calls where people weren't interested.

Diana Stepanova , the Operations Director from Monitask , shares:

"A small percentage of prospects exhibit impatience or rudeness. It's not uncommon for prospects to become frustrated if they're short on time or their needs are not being met promptly."

Salespeople must remain patient while dealing with prospects.

Diana continues, "A sales expert needs to maintain professionalism and apply empathy to understand the underlying cause of this behavior. Often, these prospects have dealt with poor customer service in the past or are under significant pressure, leading to an emotional reaction."

The inherent distrust of the profession is diluting salespeople's influence in the purchasing process and making your acquisition strategy less and less reliable.

It's scary, but there's a bright side. Within the pain of change lies opportunity, and your business boasts a huge, overlooked source of growth you probably haven't invested in — your customers.

When you're growing a business, two numbers matter more than anything else:

• How much it costs to acquire a new customer (or CAC)
• That customer's lifetime value — how much they'll spend with you over their lifetime (or LTV)

For many years, businesses focused on lowering CAC. Inbound marketing made this relatively easy, but the new rules of the internet mean this is getting harder.

As Google and social channels tighten their grips on content, the big opportunity for today's companies is raising LTV.

If your customers are unhappy, you might be in trouble. But if you've invested in their experience, you're well-poised to grow from their success.

When you have a base of successful customers who are willing and able to spread the good word about your business, you create a virtuous cycle.

Happy customers transform your business from a funnel-based go-to-market strategy into a flywheel. Through promoting your brand, they're supplementing your in-house acquisition efforts.

This creates a flywheel where post-sale investments like customer service feed "top of the funnel" activities.

The flywheel explains how you gain momentum from delivering a remarkable customer experience that produces happy customers who send you referrals and repeat sales.

Buyers trust people over brands. Do you know how much? A MarketingChart report says 1 in 4 people buy based on influencer recommendations.

And brands are getting crowded out of their traditional spaces, so why throw more money at the same go-to-market strategy when you could activate a group of people who already know and trust you?

Isn't it easier to turn customers into your brand's advocates ?

Think about it this way — by your customers promoting your brand, you're doing free marketing without appearing salesy or pushy. It's a win-win.

Customers are a source of growth you already own and a more natural and trusted way for prospects to learn about your business.

The happier your customers, the more willing they are to promote your brand, the faster your flywheel spins, and the faster your business grows. Not only is this right for your customers, but it's also a financially smart thing to do for your business.

At some point, your acquisition math will break.

Businesses are moving to a recurring-revenue or subscription-based model. It means customers pay a monthly fee for membership or access to products.

The recurring revenue model makes it easy to project expected revenue over a set time. Understanding how money moves in and out of business makes headcount planning, expansion planning, and R&D efforts easier.

But it doesn't matter if your company is subscription-based; a recurring revenue model contains lessons that apply to all businesses. Before we dive in, there are three core assumptions this model relies on.

First, every business has a defined total addressable market, or TAM. Your TAM is the maximum potential of your market. It can be bound by geography, profession, age, or other factors, but generally, every product serves a finite market.

Second, every company aims to create repeat customers — not just subscription-based ones. Below are examples of businesses that benefit from recurring revenue, even if it's not formalized through contracts or subscription fees:

• A beauty products store where customers typically purchase refills once every three months.
• A hotel chain that becomes the default choice for a frequent traveler.
• A neighborhood restaurant that's cornered the market on Saturday date nights.

Third, the key to growth is to retain your customers while expanding into the portion of your TAM that you haven't won yet.

Let's understand why a subscription-based model is valuable using an example. Suppose there's a company called Minilytics, Inc.

Minilytics starts with a customer base of 10 people and a churn rate of 30% — meaning three of their customers will not buy from them again. Each of Minilytics' salespeople can sell five new customers per month.

Because of Minilytics' small customer base, they only need to hire one salesperson to grow.

Fast forward several months, and Minilytics now has 50 customers, 15 of whom churn. To grow, Minilytics' CEO has to bring on three more salespeople, meaning they have to pay additional salaries.

You can see where this is going. At 100 or 1,000 customers, Minilytics' CEO cannot hire enough salespeople to grow. The cost of paying staff to maintain a business losing 30% of its customers will shutter most businesses.

But there's more. While Minlytics struggles to plug the leaks in its business, something else is happening that will tank the company — even with an army of salespeople.

Remember TAM? While Minilytics' CEO was hiring salespeople to replace churned customers, the company was also rapidly burning through its TAM.

Generally, customers that churn do not return because it's hard enough to gain a consumer's trust. To break trust through a poor experience, then try to rebuild it is nearly impossible.

Even if Minilytics can afford an expanding sales team, it's been rapidly churning through its TAM. Eventually, Minilytics will run through its entire total addressable market, and there will be no room to grow.

Luckily, Minilytics is just an imaginary company. Let's rewind to that first month and explore what they could have done differently.

Building a good customer experience is the foundation of growth.

Growing a sustainable company is all about leverage.

If you can identify the parts of your business model that require lots of effort but provide little reward, then re-engineer them to cost you less effort or provide more reward, you've identified a point of leverage.

Most companies hunt for leverage in their go-to-market strategy, which usually involves pouring money into marketing or sales efforts.

Customer service, customer success, customer support — or whatever you call it (at HubSpot, we have a separate team dedicated to each function, but we're the exception) — has traditionally been viewed as a cost center, not a profit center.

And it's not hard to understand why. The ROI of sales and marketing investment is immediately tangible, while investment in customer service is a long game.

But most companies mistakenly try to optimize for fewer customer interactions, so issues are left unaddressed. Because they're thinking short-term, it costs them in the long term.

Too many businesses think once a sale is made and the check's cleared, it's on to acquire the next new customer.

That doesn't work anymore. The hardest part of the customer lifecycle isn't attracting their attention or closing the deal — it's the journey that begins post-sale.

A Gladly report on customer expectations states that 40% of buyers would stop buying from a brand after two bad customer experiences.

The same report says that 59% of customers would recommend a brand to their friends because of its customer service.

Once your customers are out in the wild with your product, they're free to do, say, and share whatever they want about it.

Coincidentally, that's when many companies drop the ball, providing little guidance and bare-bones or difficult-to-navigate customer support. This approach, quite frankly, makes no sense.

Think about it this way:

• You control every part of your marketing and sales experience.
• Your marketing team carefully crafts campaigns to reach the right audiences.
• Your sales team follows a playbook when prospecting, qualifying, and closing customers.

Those processes are needed — because they're a set of repeatable, teachable activities you know lead to consistent acquisition outcomes.

Once a customer has your product in their hands, one of two things will happen: They will succeed or not.

If they're a new customer or first-time user, they might need help understanding how to use it. They would want to learn from others who have used your product or want recommendations on how best to use it.

Regardless of what roadblocks they encounter, one thing is sure: There's no guarantee they'll achieve what they want — this is a gaping hole in your business.

• No one is better positioned to teach your customers about your product than you.
• No one has more data on what makes your customers successful than you.
• And no one loses more from getting the customer experience wrong than you.

Let me say that again: Nobody has more skin in this game than you.

40% of respondents said they'd stop buying from a company because of a poor customer experience. If your customers are dissatisfied, they can — and will — switch to another provider.

Few businesses today have no competitors. Once you lose a customer, you'll not get them back. If you fail to make your customers successful, you'll fail too.

But if you help them achieve their goals with exceptional customer service, they'll recommend you to their friends. They'll get you more customers.

Not convinced? Hear it straight from buyers.

Diana Stepanova from Monitask shares her positive experience with a customer service team of a SaaS product she purchased:

"I would undoubtedly recommend this onboarding team to my friends and colleagues, as their exemplary service made a massive difference in my overall experience. In fact, I would be more than happy to share my positive encounter with others as frequently as the opportunity arises."

Still not convinced? Let's take back our example and understand how to best allocate money between marketing, sales, and customer service.

Consider Minilytics and Biglytics (competitor) with a CAC of $10 and a budget of $100.

Minilytics hasn't invested in a well-trained customer service team, so their churn rate is 30%. Three customers churn, so they spend $30 replacing them. The remaining $70 is spent on acquisition, ending with 17 customers.

At Biglytics, things are different. Customer service isn't the biggest part of the budget, but the team is paid, trained, and knowledgeable enough to coach customers who need help.

Because Biglytics has proactively spent $10 of its budget on customer service, its churn rate is much lower, at 10% (a churn rate of 10% is actually terrible — we just chose it to keep numbers simple).

Biglytics replaces their single churned customer for $10 and spends the remaining $80 on eight new customers, netting out at 18 customers.

A one-customer difference doesn't seem significant. But that $10 Biglytics invested in their customer service team has been working in the background.

Customers they brought on last year succeeded with the product because of excellent customer service. These happy advocates kept talking about Biglytics to their friends, family, and colleagues.

Through referrals and recommendations, Biglytics brings on five more customers without extra work from the sales team.

This means Biglytics has brought on six more customers than Minilytics in the same period and reduced their average CAC to $7.14.

Which company would you rather bet on? I'm guessing it's Biglytics.

That's why investing in customer service is so powerful. When you see the whole picture, you discover more opportunities to grow. You'll find it costs 5 to 25 times more to acquire a new customer than to retain an existing one.

Prioritizing short-term growth at the expense of customer happiness is a surefire way to ensure you'll be pouring money into the business just to stay in maintenance mode.

The 4 Points of Leverage in the Customer Experience

A good customer experience goes beyond hiring support staff — it starts pre-sale. The four points of leverage are where you can start working today.

1. Pre-sale: Understand customer goals.

People buy products to fix a problem or improve their lives — to get closer to an ideal state from their current state. Your job is to help them get there.

Depending on what you sell, much of the work required to make your customers successful might not be done until post-sale through coaching and customer support.

But if you understand your customers' common goals, you can reverse-engineer your acquisition strategy.

Emily Haahr , head of support and professional services at Plaid , explains how this works:

"Your best customers stay with you because they get value from your products. Dissect your most successful customers and trace back to how they found you in the first place.

What marketing brought them to your site? What free tool or piece of content converted them to a lead? What type of onboarding did they receive, and with whom? What steps did they take in onboarding? And so on…

Once you have this information, you can identify and target the best fits for your product earlier, then proactively guide your customers down a path of success instead of trying to save them once they've reached the point of no return."

2. Pre-sale: Make it easier for your customers to buy.

Determine if your sales process could be easier to navigate. Today, buyers don't want to talk to a salesperson or pay money before they know how well a product works. You should empower them to do so.

Can you give away part of your product or service so prospects can try it before they buy? This way, they'll qualify themselves and learn how to use your product before you ever have to raise a finger.

Anecdotally, HubSpot has seen the most rapid growth in our acquisition through self-service purchases.

Also, evaluate what parts of your marketing and sales process can be automated. Can you add a calendar scheduler to make it easier for buyers to book product demos when they want?

The more you can take off your marketers' and salespeople's plates, the better you'll give your buyers more control over their purchases.

This change is already happening. Think about Netflix, Spotify, and Uber. All three companies disrupted industries with difficulty built into their go-to-market.

• People wanted to watch movies but didn't want to pay late fees. Hello, Netflix.
• People wanted to listen to music but didn't want to pay for individual songs or albums. Hello, Spotify.
• People wanted to be driven between Point A and B but didn't want to wait for cabs in the rain. Hello, Uber.

Today's biggest disruptors got to where they are by disrupting inconvenience. Hurdles are the enemy — remove as many as you can.

3. Post-sale: Invest in your customers' success.

At HubSpot, we believe in earning success by investing in customers' success. That's how we've helped Shore and thousands of other businesses achieve incredible results.

I scaled the HubSpot customer service team to over 250 employees, and we've found a few things that help us make our customers happier. I'm sharing them here so you can too:

Gather feedback — NPS® or otherwise.

As early as possible, start surveying your customer base to understand how likely they are to recommend your product to a friend. You can also send post-case surveys to customers whose issues your team has helped resolve.

At HubSpot, we track Net Promoter Score (NPS) maniacally — a company-level metric we all work toward improving. It helps us:

• Identify holes in our customer service early.
• Track customer sentiment over time (the trend of NPS is more valuable than one raw number).
• Quantify the value of customer happiness — when we changed a customer from a detractor to a promoter, the LTV increased by 10-15%.

Start small with a post-support case NPS to determine if immediate issues were resolved. From there, you can build up a quarterly or monthly NPS survey of your customer base that focuses on their general experience with the product.

Build up a lightweight knowledge base.

Self-service is the name of the game. Identify your most commonly asked customer questions or encountered issues, then write up the answers into a simple FAQ page or the beginnings of a searchable knowledge base.

This enables your customers to search for their solutions instead of waiting on hold to get human support. It takes work off your team's plate as a bonus.

Over the years, HubSpot built a vast library of self-service resources that helped customers and helped us retain them longer.

4. Post-success: Activate happy customers into advocates.

Once you have happy and successful customers, it's time to put them to work for you.

Buyers report they check review sites when making a purchase decision. They're listening to your customers, not you.

Use your customers as a source of referrals and social proof for your business through testimonials, case studies, references, and brand amplification.

The key to successful customer advocacy is not asking for anything too early. Don't try to extract value from your customers until you've provided value — asking for five referrals a week after they've signed a contract is inappropriate.

Your primary goal should always be to make your customers successful. After you've done that, you can ask for something in return.

Putting It All together: The Inbound Service Framework

At HubSpot, we've made many mistakes but learned even more about how to build a repeatable playbook for leading your customers to success and eventually turning them into promoters.

We call it the inbound service framework.

Step 1: Engage

Good customer service is the foundation — that's why "Engage" is the first part of this framework. At this stage, your only concern is understanding and resolving the customers' questions.

Cast a wide net when you're just getting started. Engage with any customer, wherever, about whatever they want. Be on all channels, solve all problems that come your way, and help anyone who needs it.

Above all, make sure you're easy to interact with.

At HubSpot, we found that customers who submitted at least one support ticket a month retained at a rate around 10% higher than customers who didn't and were 9-10 times more likely to renew with HubSpot year after year.

Not getting support tickets does not mean your product has no issues — every product does. It just means your customers are suffering silently.

With time, you'll refine your approach, but this initial operating system helps you gather lots of data rapidly. At this stage, your objective is to learn as much as possible about the following:

• FAQs requiring customized guidance
• FAQs that can be addressed with a canned response
• Most confusing parts of your product/service
• When support issues arise, do people require implementation help or encounter issues three months after purchase?
• Commonalities of customers who need the most help
• Your customers' preferred support channels

This data will enable you to identify leverage points in your customer service motion.

For example, if you find that 30% of customer queries have quick, one-and-done answers ("How do I change my password?", "How do I track my order?", "What is your return policy?"), stand up a simple FAQ page to direct customers to.

Boom — you've freed up 30% of your team's time to work on more complicated, specific issues.

Empower your customer team to make noise about the problems they see, early and often, and turn their insights into action.

Are your sales and marketing teams overpromising? Your customer team will hear these complaints first. Trace the points of confusion back to their origin, and change your sales and marketing messages to reflect reality.

Is there something about your product that causes mass confusion? Your customer team will know which parts of your product/service are most difficult to navigate and why. Use this information to improve your product/service, eliminating these problems at the source.

Do certain types of customers run into issues frequently? Do they usually churn or require extra love to get over the hump?

• If it's the former, build an "anti-persona" your sales and marketing teams should avoid marketing and selling to.
• If it's the latter, dive into that cohort of customers to understand whether their lifetime value justifies the extra help they need.

As you learn more about your customers, you'll find new ways to refine your process.

Identify your team's most effective support channels and create an excellent experience for those, then establish a single queue to manage all inquiries.

In this stage, measure success by how fast you solve problems and post-case customer satisfaction. You can do the latter through a post-case NPS survey, which gives instant feedback on your customer team's effectiveness.

Step 2: Guide

In the "Guide" stage, focus on turning your customer relationship from a reactive, transactional model into a proactive partnership.

It's time to transform your customer team from a supportive function into a customer success-driven organization.

(The reactive part of your customer service organization will never go away. But as you grow, it should become part of a multifunctional group.)

What does it mean to be proactive?

First, it means anticipating common issues and challenges and building resources to prevent them. This includes a knowledge base or FAQ and re-engineering parts of your offering to be more user-friendly and intuitive.

Second, it means partnering with your customers to help them get to their stated goals. Guide them through critical milestones, provide tasks to keep them on track, and connect them with peers so they can crowdsource answers if necessary.

Create frameworks and tutorials where you can.

It's better to be proactive than reactive for a few reasons:

• It saves time, and time is money. Imagine the time you'll save your support team if you can get repetitive queries off their plates, which can be spent on complex, higher-level issues revealing even larger leverage points in your business.
• It makes your customers happier. Even if you can resolve issues at a 100% success rate with 100% satisfaction, you've still built an experience filled with roadblocks. Aim to build a world where you've anticipated and solved your customers' challenges at their source.
• It builds a trusting relationship. Buyers are more likely to trust a company that rarely lets them down over a brand constantly scrambling to fix the next issue.
• It's a competitive advantage. Proactive guidance makes you extremely knowledgeable about your customer's weakest pain points which can be used as a core part of what you're selling, even if it's positioned as customer service.

As you move from reactive support into proactive guidance, you become a teacher, not a vendor. Other companies might be able to build a product as good as yours, but it'll be hard to replicate the trust you have with your customers.

Guidance is an iterative process. As in the early days of your customer organization, collect as much data as possible on the customer lifecycle and continuously update your guidance to reflect current best practices.

Pay attention to the best formats and channels, which issues have the highest impact on your customers once solved, and update your process accordingly.

Step 3: Grow

Happy customers want to support the businesses they love. They refer their favorite brands to friends and purchase again from the same brand.

Your happy buyers want to help you. That's what the "Grow" stage is all about — turning that desire into action.

"There are three ways to activate your customer base into promoters," says Laurie Aquilante , HubSpot's director of customer marketing: "Social proof, brand amplification, and referrals." Let's review each play.

1. Social Proof

Buyers are more likely to trust and do business with companies their networks trust. The following are all different ways your customers can create social proof for your product:

• Sharing positive experiences on social media or review sites
• Providing referrals (more on this later)
• Testimonials/case studies
• Customer references in the sales process

"Activating social proof is all about keeping a close watch on your customers. It's also not a pick-one-and-done kind of thing," Aquilante says. "For example, case studies and customer references are helpful at different points in your sales motion."

While you could use the same customer for both, having customers who can speak to diverse experiences is more beneficial.

Encourage social proof by proactively reaching out to your most satisfied customers. You can also provide incentives for sharing content or writing online reviews.

2. Brand Amplification

When someone shares your content on social media, helps contribute content for a campaign, or interacts with it, they amplify your brand.

"To make this happen, you must provide a 'what's in it for me?'" Aquilante says.

"Either create such engaging content and be so remarkable that your customers can't help but amplify your message, or provide an incentive, like points toward future rewards or something more transactional, like getting a gift card for sharing content a certain amount of times."

3. Referrals

Referrals have the most immediate monetary value for your business. B2C companies are masters at the referral game, awarding the referrer credit to their account or even monetary rewards.

B2B referrals are trickier. B2B purchases tend to be more expensive than B2C, involving multiple stakeholders and a longer sales process.

So your customer likely has to do some selling upfront to feel comfortable sending a contact's information to you.

It's not impossible to get this right, but offering your customer something valuable enough to incentivize them to do this work on your behalf is crucial.

"Get in your customer's head, figure out what matters to them, and make sure that you've got a good exchange of value," Aquilante says. "They're offering you something of very high value if they're referring your business, and you've got to offer something in return."

4. Upsells and Cross-sells

A note from our lawyers: These results contain estimates by HubSpot and are intended for informational purposes only. As past performance does not guarantee future results, the estimates provided in this report may have no bearing on, and may not be indicative of, any returns that may be realized through participation in HubSpot's offerings.

Aside from promoting your brand and bringing you business, your customers are also a source of net new revenue if you have multiple products or services. Your customer team is your not-so-secret weapon in unlocking this revenue.

In late 2017, HubSpot piloted the "Support-Qualified Leads" concept at HubSpot.

Our sales team owns selling new business and upselling/cross-selling those accounts.

But our support team is the one speaking with customers daily, so it's just intuitive that they have a better understanding of when customers reach a point where their needs grow past the products they currently have.

When a customer has a new business need and has the budget to expand their offerings with HubSpot, a customer success representative passes the lead to the appropriate salesperson, who takes over the sales conversation.

The Support-Qualified Lead model is powerful because it closes the communication loop between sales and support.

In its first month, the pilot generated almost $20,000 in annual recurring revenue from cross-sells and upsells. Since we've rolled this out, we've generated over $470,000 in annual recurring revenue from this model — nothing to sneeze at.

Start Optimizing Your Customers' Experience Today

Growth has always been challenging. If you're just starting, it's hard to imagine ever competing with the top companies in your industry.

Customer service is the key to this equation.

If you provide an excellent customer experience and can create a community of people willing to promote your business on your behalf, you're laying the groundwork for sustainable, long-term growth.

And in a world where acquisition is getting more complicated, who wouldn't want that?

This post was originally published in May 2018 and has been updated for comprehensiveness.

Net Promoter, Net Promoter System, Net Promoter Score, NPS and the NPS-related emoticons are registered trademarks of Bain & Company, Inc., Fred Reichheld and Satmetrix Systems, Inc.

Don't forget to share this post!

Related articles.

6 Companies That Saw Customer Acquisition Soar (And How They Did It)

4 Customer Acquisition Challenges You Might Face This Year

POS Reports: How to Use Them To Grow Your Customer Base

What’s a Subscription Business Model & How Does It Work?

16 Types of Customer Needs (and How to Solve for Them)

What is a Good LTV to CAC Ratio?

How to Build a Strong Customer Referral Program in 2023 [Ideas & Examples]

Customer Acquisition Cost: How to Calculate CAC [+Benchmarks & Formulas to Know]

Customer Acquisition vs. Retention: Where Should You Focus in 2023?

How to Ask for a Referral From a Client [+ Best Email Templates]

Calculate your NPS, CSAT, CAC, and more for free with this calculator.

Service Hub provides everything you need to delight and retain customers while supporting the success of your whole front office

Customer Acquisition Cost: How To Calculate It To Scale Your Business Fast

• Jan 18, 2023

The evolution of digital advertising and the ability to track consumer behavior online has increased the significance of the customer acquisition cost (CAC) metric.

In the past, companies had limited methods to assess the effectiveness of their advertising campaigns and track consumer decision-making.

With the dawn of web-based companies and targeted advertising campaigns, CAC has become a critical tool for companies and investors to measure success.

CAC refers to the cost of acquiring a customer through marketing and sales efforts. It measures the monetary and other resources invested in converting a potential customer into an actual customer.

In this article, you’ll learn what the CAC metric is and its calculation. We’ll also share super actionable strategies to optimize it.

What Is Customer Acquisition Cost?

The expense incurred to attract new consumers is referred to as the customer acquisition cost (CAC).

This value is derived by dividing the overall expense of marketing strategies to attract new customers by the total number of new customers obtained within a specified period.

For businesses, the customer acquisition cost (CAC) is a critical indicator that can inform and shape future advertising and product marketing endeavors.

By monitoring CAC, businesses can learn the cost of acquiring each customer through various channels and campaigns. That’s why businesses must keep track of this metric.

What factors influence the price of acquiring new customers?

Here are some examples of the factors you’d examine when you’re ready to calculate customer acquisition costs as a service-based business:

• The advertising costs
• Expenses incurred by your marketing staff
• Expenses related to sales rep costs
• Creative costs
• Expenses incurred due to technical costs
• The publishing costs
• The production costs.

Customer Acquisition Cost Model (CAC) Example

Say you are a business that sells coaching courses. You have spent $10,000 in the last six months on marketing and sales strategies to get new customers. 

As a result, you have 100 new customers. To calculate customer acquisition cost, you’d divide $10,000 by 100. This means that the average cost of winning a customer is $100. Below we’ll go deeper into the formula to use when you’re ready to calculate CAC for your business.

How to Calculate Customer Acquisition Cost

How to find customer acquisition cost is by using a formula:

Customer Acquisition Cost Formula =

CAC Total Cost of Acquiring Customers / Number of Customers Acquired

To figure out CAC, you must first figure out all the costs of getting new customers. This include:

• Marketing expenses (such as advertising, social media campaigns, etc.)
• Sales costs (such as salaries and commissions)
• Other overhead costs (such as office space).

Once you know all the costs of getting new customers, you can divide this total cost by the number of new customers you get in a certain time frame.

Customer Acquisition Cost vs Lifetime Value

CLV, or customer lifetime value, represents the estimated revenue a business can expect to generate from a customer throughout their journey with the business.

Consider this scenario:  A customer signs up for a product with a one-year subscription plan.

In this case, their lifetime value would equal that year’s expected revenue.

The longer customers stay engaged with a business, the more frequently they purchase and the higher their CLV.

Businesses can focus on attracting and acquiring more customers with similar characteristics by determining which customer profiles bring in the highest CLV.

If you haven’t calculated your CLV yet, here’s a great article where you’ll learn  how to calculate customer lifetime value (CLV) .

As discussed earlier in this article, the CAC is the cost of acquiring new customers.

The LTV-to-CAC ratio of your business is a quick way to understand the worth of a customer based on the cost of acquiring them. You can get this ratio by dividing the LTV by your CAC.

How to Track Customer Acquisition Cost?

CAC tracking is critical for businesses to understand how much it costs to acquire each customer. To track CAC, you need a system that can follow all the costs associated with acquiring customers. 

Here are some ways to track customer acquisition costs: 

Ask How Customers Found You

By simply asking customers how they heard about your business, you can gain valuable insights into which channels are most effective for customer acquisition. This information can then be used to plan marketing and sales strategies and budgets.

By tracking how much it costs to get a new customer over time, businesses can spot trends in their CAC and make changes. A simple and effective technique to measure CAC is to ask consumers how they heard about your company. If they say that they saw an ad on social media, you will know that this customer cost money to acquire. If the customer came through word of mouth referral, they were free!

Use Google Sheets

Google Sheets is a powerful tool for tracking customer acquisition costs. You can easily make a spreadsheet in Google Sheets to keep track of all the costs of getting new customers. This includes marketing expenses, sales costs, and other overhead costs. 

You can use formulas in Google Sheets to calculate CAC quickly and accurately.

Use Software or Code

Using software or a code to track customer acquisition cost is an excellent way to measure CAC quickly and accurately. Firms can track CAC with the help of many software solutions, such as Salesforce , HubSpot , and Marketo.  

These solutions make it easy for businesses to keep track of all the costs of getting new customers, such as marketing costs, sales costs, and other “overhead” costs. These technologies provide firms with insights into which client acquisition channels are most efficient.

Google Analytics

Google Analytics is a fantastic tool for tracking the cost of customer acquisition. Businesses can use Google Analytics to track how well their marketing campaigns work and determine which channels bring in the most customers.

Google Analytics provides businesses with insights into how customers interact with their websites. This lets them see which pages customers visit and how long they stay on each page. This information can be used to inform marketing strategies and budgeting decisions.

CAC for Each Marketing Channel

Most marketers want to know the CAC for each of their paid marketing channels. You know where to increase your marketing spend if you know which channels have the lowest CAC. The more your marketing budget you can dedicate to lower CAC channels, the more clients you can get for a set expenditure.

Some of the most popular digital marketing channels are the following:

Search Engine Optimization (SEO)

SEO improves your website’s search engine rankings for business-related keywords 

Example: An Internet marketing business will charge $4,000 to $10,000 for SEO setup and $1,000 each month.

To figure out how much it costs to get a new customer through SEO, add up all of the costs, both money and time. Divide that figure by the entire number of SEO conversions, which analytics tools can track.

If you spent $10,000 on SEO and gained 10,000 organic consumers in a year, your CAC would be $1.

SEO is inexpensive and lets you reach your best prospects online.

Pay-per-Click (PPC)

PPC advertising lets you choose keywords and phrases to activate ads. If your bids are high, your ads will show up above the organic search results for your chosen keywords and phrases.

After you’ve paid between $4,000 and $10,000 to set up your PPC campaigns, each click will only cost a few cents. 

Analytics software can track PPC ad conversions. If you use huge platforms like Google AdWords, these calculations are automatic, and you can view your CAC in the analytics section.

E-mail Marketing

Email marketing costs are comparable to SEO and PPC. 

Example: Internet marketing firms charge $4,000–$10,000 upfront. This works out to a few cents to $3 per qualifying visitor and $500 per month.

Email marketing lets potential customers interact with your content without interrupting their day, and 72% of U.S. adults prefer it to telemarketing .

Content Marketing

Content marketing doesn’t have any ongoing costs, so as more customers buy from you, your CAC per item will go down. It also educates consumers about potential purchases, adding value to the buying cycle.

Example: Content marketing costs can initially cost around $6,000–12,000 for a business. However, if you choose evergreen topics, your content might keep bringing in new clients for free.

Tips to Improve Customer Acquisition Cost

Once you have tracked your CAC, there are several strategies you can use to reduce it.

Improve On-site Conversion Metrics

One of the best ways to cut down on customer acquisition costs is to improve the metrics for converting visitors to your site. By making your website easier for people to buy from or sign up for your service, you may get more people to do so. 

This can be done by improving website design, ensuring the checkout process is easy and intuitive and ensuring that all pages are optimized for mobile devices. 

You can use A/B testing to determine which parts of your website are better at turning visitors into customers. That way, when you calculate customer acquisition cost after making changes, you’ll see the impact on your bottom line of having a more effective website user experience.

Enhance User Value

Reducing CAC can also be achieved by improving the value customers receive from your product or service. You can accomplish this by introducing new features, exceptional customer support, and providing discounts or special promotions.

Another approach to consider is creating compelling content showcasing the benefits of your product or service, ultimately inciting a desire to purchase.

Implement Customer Relationship Management (CRM)

CRM (Customer Relationship Management) is a customer experience management system. It’s a technology that logs, tracks, and consolidates lead, prospect, and customer information.

Also, CRM helps organizations gain insights into customer behavior and preferences and provides a 360-degree view of leads, prospects, and customers to support and improve the buyer journey.

It also integrates all customer data into one system, allowing teams to use it to inform targeted and relevant customer interactions and drive higher customer retention.

CRM systems can provide insights to improve sales conversations’ relevancy and value, reducing customer acquisition costs.

We like to use Active Campaign at Scaling With Systems.

Optimize Marketing Channels

Optimize your marketing channels to reach the right customers with the right message at the right time. That can help decrease CAC by making your marketing efforts more successful and efficient.

That way, you can decide which channels get you the most clients so that you can focus your efforts on those channels.

Customer Acquisition Cost: FAQs

What is customer acquisition cost.

Customer acquisition cost (CAC) is a crucial metric in marketing that quantifies the amount a company must spend to secure a new customer.

Companies use various methods, such as paying for banner clicks, creating engaging graphics, and writing articles, to attract potential customers and measure their investment’s ROI with CAC.

By closely tracking CAC, companies can evaluate the effectiveness of their customer acquisition efforts and make informed decisions to grow their customer base.

What are examples of customer acquisition costs?

Examples of customer acquisition costs that you’ll examine as you calculate CAC include: 

Why is customer acquisition cost important?

Customer acquisition cost (CAC) is a crucial metric in marketing that quantifies the amount a company must spend to secure a new customer. By closely tracking CAC, companies can evaluate the effectiveness of their customer acquisition efforts and make informed decisions to grow their customer base.

How to reduce customer acquisition costs?

• Improve on-site conversion metrics
• Enhance user value
• Implement customer relationship management (CRM)
• Optimize marketing channels

The Bottom Line: Calculate CAC

Data-driven decisions can launch your company to the forefront of the industry and give you the confidence to believe in your success.

Customer acquisition cost is more than just a number; it’s a tool for growth and innovation. You’re building a solid foundation for a thriving business that attracts and retains customers by tracking and optimizing your CAC.

CAC guides you in allocating resources, crafting winning marketing strategies, and making informed decisions in your client acquisition efforts.

Unlock limitless potential with Scaling With Systems.

Discover new business opportunities, attract loyal customers, and achieve profitability with our expert-driven customer acquisition strategies.

Book a free consultation call  and take the first step toward success.

Want To Scale (For Free)?

Join 120,000+ learning how to systemize and scale their business by subscribing to the “Scaling Scoop.”

Let Us Build You The Same System That Generates Us 20 Qualified Sales Calls Every Single Day

Quick Links

• 4-Week Action Plan

Copyright © 2023 OmniBuys LLC All rights reserved.

This website is operated and maintained by OmniBuys LLC. Use of the website is governed by its Terms Of Service and Privacy Policy .

OmniBuys LLC is a sales and marketing education and training company. We do not sell a business opportunity, “get rich quick” program or money-making system. We believe, with education, individuals can be better prepared to make investment decisions, but we do not guarantee success in our training. We do not make earnings claims, efforts claims, or claims that our training will make you any money. All material is intellectual property and protected by copyright. Any duplication, reproduction, or distribution is strictly prohibited. Please see our Full Disclosure for important details.

Investing of any kind carries risk and it is possible to lose some or all of your money. The training provided is general in nature, and some strategies may not be appropriate for all individuals or all situations. We make no representation regarding the likelihood or probability that any actual or hypothetical investment will achieve a particular outcome or perform in any predictable manner.

Statements and depictions are the opinions, findings, or experiences of individuals who generally have purchased education and training. Results vary, are not typical, and rely on individual effort, time, and skill, as well as unknown conditions and other factors. We do not measure earnings or financial performance. Instead, we track completed transactions and satisfaction of services by voluntary surveys. You should not, however, equate reported sales transactions with financially successful transactions. Further, many customers do not continue with the program, do not apply what they learn, or do attempt to apply what they learn but nonetheless have difficulty in making sales successful for them.

The Company may link to content or refer to content and/or services created by or provided by third parties that are not affiliated with the Company. The Company is not responsible for such content and does not endorse or approve it. The Company may provide services by or refer you to third-party businesses. Some of these businesses have common interest and ownership with the Company.

This site is not a part of the YouTube, Bing Google or Facebook website; Google Inc, Microsoft INC or Meta Inc. Additionally, This site is NOT endorsed by YouTube, Google, Bing or Facebook in any way. FACEBOOK is a trademark of FACEBOOK, Inc. YOUTUBE is a trademark of GOOGLE Inc. BING is a trademark of MICROSOFT Inc.

OmniBuys LLC, 2121 Biscayne Blvd #1836 Miami, FL 33137

💥 Reach thousands of inboxes in minutes: All new 'Email Campaigns' is here! - Learn More

• CRM Modern and flexible CRM for all teams
• Automation Automate processes & customer journeys
• Conversations Engage and support customers across all channels
• Campaigns Generate leads with personalized marketing campaigns
• Analytics Make better decisions with rich data and insights
• Sales Pipelines
• Sales Automation
• Smart Emails
• Built-in Calling
• Built-in Texting
• Meeting Schedular
• Power Dialer
• Marketing Automation
• Inbound Sales
• Outbound Sales
• Remote Sales
• Account Based Sales
• Sales Leaders
• Small Businesses
• Real Estate
• Construction
• More Industries
• Customer Stories
• How we Compare
• Security & Trust
• Blog Every ounce of marketing, sales & CX knowledge you need!
• Product Updates Latest features and additions in Salesmate CRM.
• Support Portal Understand every bit of Salesmate from our experts.
• How-to Videos Visual content to gain in-depth knowledge of Salesmate.
• Free Tools & Templates Wide range of resources and tips for business growth.
• Product Integrations Connect Salesmate with your favorite apps using APIs.

🚀January Experience Updates: 3 Key changes to kick-start 2024

• Conversations
• Analytics AI
• Product Updates
• Support Portal
• How-to Videos
• Free Tools & Templates
• Product Integrations

Calculating customer acquisition cost and understanding it

While setting up a new business, entrepreneurs are more inclined towards acquiring new customers by any means possible. The most important insight they can gain for a successful business venture comes after understanding and calculating customer acquisition cost.

• Revenue is the lifeline of every business today.
• Loyal customers help businesses survive and generate referrals.
• Without these loyal customers, success will always elude businesses.

In the long run, however, such an outlook makes customer acquisition costs unpredictable and overinflated.

Calculating customer acquisition cost against customer lifetime value helps a business know the individual earning from their customers.

What is the customer acquisition cost (CAC)?

Customer acquisition cost includes sales and marketing costs incurred while acquiring a new customer for the business.

• Ideally, the less a business has to spend on acquiring a new customer, the better.
• Customer acquisition cost varies from business to business.
• Every business has its own niche and a distinct target audience.
• Customer acquisition cost is an important metric.
• It helps business owners determine if their business model is a viable one.
• If the business is having higher profits after deducting all the expenses, it’s a very good sign.

Businesses must match up to the acquisition cost against customer lifetime value. It helps in determining the overall costing of the business.

• Every business must understand their CAC as it helps them in investing wisely and scale their business.
• Determining expenditure is important for businesses.
• They get an idea of how much revenue is needed for better sustenance and growth.

What is customer lifetime value (LTV or CLV)?

As a business, how much revenue are you earning from a single customer?

• When business owners average out this figure across their customer database, the outcome becomes the customer lifetime value.
• It’s better to have a higher customer lifetime value.
• Longer a customer stays with a company, the more valuable that customer becomes.

LTV (Lifetime value) vs CAC (Customer acquisition cost) Ratio

• Speaking in general terms, the customer acquisition costs of a business should be at or less than 33 percent of their customer lifetime value.
• Comparing customer acquisition cost and customer lifetime value is important.
• It helps them in understanding the viability of the customer acquisition model.
• If customer acquisition cost of any business exceeds expected customer lifetime value, it is using a non-sustainable acquisition model.
• While calculating the LTV: CAC ratio, business owners must simplify the ratio.
• The lifetime value and customer acquisition cost will likely be large and uneven numbers, hindering the achievement of simplified ratios.

Important note: The costs associated with retaining customers must be evaluated later and compared against this LTV: CAC ratio.

How to calculate customer acquisition cost?

A simpler way for business owners to calculate customer acquisition cost:

Dividing the total cost of sales and marketing by the number of customers acquired after that expense.

For instance:

• Let’s say as a business you are spending $7,500 on acquiring 200 customers.
• Thus, the cost of acquisition $37.5 per customer.
• Customer-lifetime value is easy to calculate.
• Business owners have to add up the revenue earned from each customer and divide it by the total number of customers.
• Customer-lifetime value and customer acquisition cost ratio higher than or equal to three depict viable business model.

Customer acquisition cost formula

In this section, we will be showing how to calculate customer acquisition cost.

Mistakes in customer acquisition cost calculation

By now it must have become clear that there is no universal method that can help business owners calculate the customer acquisition cost.

• There is no standard method for calculating CAC across all industries which leaves a lot of room for errors.
• Most business owners underestimate the expenses necessary for acquiring a new customer.
• Overlooking certain expenses for a lower CAC is also a tempting error that business owners frequently commit.

Many freemium products or service providers avoid the cost of maintenance of such services while calculating customer acquisition cost.

A hypothetical customer acquisition cost case study

We are going to use a hypothetical productivity app called Beaker as an example for explaining customer acquisition cost.

• The Beaker team has a unique business model.
• The majority of their app contributions comes from other users.
• The exception of their special service research which is a paid subscription service.
• The team subsidizes the freemium content model with an advertising revenue model.
• We will be using round figures for easy calculations.

Beaker has around 1,000,000 free monthly users and 40,000 paid subscribers and growing. The paid subscription brings in recurring monthly revenue of $20 per subscriber.

Beaker: How to calculate customer acquisition cost

• For providing freemium content the costing comes to $2 million per year with annual ad revenues of $3 million.
• In the last quarter, sales and marketing expenses, excluding salaries, were $80,000.
• The sales and marketing team is comprised of 5 full-time employees with total salaries of $400,000.
• In the latest fiscal quarter, Beaker acquired 40,000 new paid subscribers.

With sales and marketing expenses of $200,000, the customer acquisition cost is calculated as:

Beaker: Calculating the customer lifetime value

• The Beaker team has an average premium subscriber that has continued to pay $20/month over the course of 3 years.
• Special service research is rather expensive to be done on a monthly basis.
• That leaves their profit margin at 5%.

The customer lifetime value for Beaker would be calculated as follows:

Beaker: (LTV: CAC)

• The Beaker team wants to calculate its LTV: CAC ratio.
• They have a customer acquisition cost of $5 and a customer lifetime value of $36.
• The LTV: CAC ratio would be expressed $36: $5.

In order to simplify this ratio, the Beaker team would need to divide the antecedent and consequent by a common factor, in this case, 5:

In this example, the LTV: CAC ratio for Beaker is 7:1.

• The common benchmark for LTV: CAC is 3:1.
• A higher ratio will mean the customer lifetime value exceeds the customer acquisition cost.
• An LTV: CAC ratio of 7:1 means Beaker generating 6 times the amount they are spending on customer acquisition cost.

Hence, maintaining a healthy business model.

How can businesses improve customer acquisition cost?

Businesses can improve their cost of customer acquisition by increasing the LTV: CAC ratio to more than 3:1. We are suggesting some of these strategies businesses can work on for improving their customer acquisition cost:

Investing in conversion rate optimization 

• Businesses must work on making the purchasing process smooth for their website visitors.
• They must make sure the process is simple for visitors to get converted into leads, and into paying customers.

Optimizing the website for mobile form submissions and shopping will help create a touchless sales process for the website visitors.

Adding customer value

• Increasing customer retention by providing value to their purchase.
• Businesses must collect customers feedback.
• They must fix their product and add new features to their service.
• Businesses must do their best for providing customers with what they ask for.

This helps in making the customers stick around longer.

Implementing a better customer referral program

• Have a loyal customer base that refers its contacts to you that proves to be a warm prospect.
• This is an excellent opportunity to lower their CAC as the CAC value on such customers is $0.

Building a better customer referral program for their loyal customers is a better idea.

Streamlining your sales cycle

• By decreasing the length of the typical sales cycle, businesses can effectively decrease their CAC.
• The faster they are able to generate revenue the faster they will cover their CAC.
• Using a CRM properly helps in prospecting and connecting with more qualified prospects.

It also helps in converting these prospects into paying customers in lesser time.

Wrapping it up

• We hope that this article will allow you to understand the importance of understanding and calculating customer acquisition cost.
• After getting the CAC, marking your business model as a viable one becomes easy.
• It has the potential for growth over time.
• The trick lies in understanding the customer acquisition cost formula. 
• There are ways and tools mentioned in this article that can be used for curbing the customer acquisition cost of business.

One such tool mentioned was the CRM (customer relationship management) software. Salesmate CRM is one such sales intelligence tool that can allow businesses to understand their entire sales process in a single glance.

The intuitive reporting can help them understand where the prospects in the current sales pipeline are, how many deals are on the verge of closure, and how many are stalled.

With all the smart features available at their disposal at a budget-friendly price , it becomes easier for the small and mid-size business owners to scale their business and handle their CAC. If you want to know more about the features of Salesmate , get in touch with us anytime and we will be more than happy to help you.

Learn how to maximize your LTV from Neil Patel in this infographic.

Saptarshi Das

A writer with an uncommon funny bone and a knack for perfection, Saptarshi loves to write about anything that can be of help to businesses, people, and dogs! A true human at heart, he likes to spend most of his time researching the internet to find ways technology is influencing our daily life (positively).

You may also enjoy these

Top cold email tools in 2024: expert recommendations & reviews.

Cold email marketing software with features like personalization, automation, and analytics simplifies your work...

14 Toughest manufacturing marketing challenges – Conquer now!

Post-covid, the manufacturing industry has been highly...

Content marketing for manufacturers: Strategy, ideas, & tips!

As per a CMI report, 71% of manufacturing marketers stated that content marketing has become more integral to...

Marketing for contract manufacturing: Build your brand in 2024!

Contract manufacturing is projected to rise 6.6% yearly to fulfill demand and support businesses to...

14 Best email automation tools to enhance your campaigns

Creating and executing any kind of email campaign is a time-consuming task. On top of that, if you’re not...

Customer Acquisition Cost (CAC): How To Calculate and Reduce

Doing regular marketing activities can be a major expense for any company. It’s not just the cost of paid activities, but also day-to-day expenses like operational costs and using marketing tools. 

But how can you be sure that you’re using your money wisely? Well, there’s a neat little metric that aligns closely with your marketing efforts. It’s called the Customer Acquisition Cost. If you’re wondering how to measure it and, more importantly, how to reduce it, this article is for you.

Read on to learn how to measure the effectiveness of your operations accurately!

What is customer acquisition cost (CAC)?

Let’s start with the basic definition of CAC.

Customer Acquisition Cost (CAC) is the total amount that companies spend to get new customers. This includes the costs of marketing campaigns, employee costs, software costs, and all the other factors necessary for getting a customer.

CAC helps companies figure out the cost incurred for each new customer they gain over a specific time range; for example, a year or a financial quarter.

CAC can provide some pretty worthwhile insights into your company’s operational efficiency. It can even reveal the value derived from your investment in customer acquisition. 

The bottom line? This metric is the standard for benchmarking the efficiency of your marketing and sales efforts.

How to calculate customer acquisition cost (CAC)?

To determine your Customer Acquisition Cost (CAC), you need to divide the total marketing expenses by the number of customers you acquired during a specific period. 

At its simplest, the formula is:

CAC = marketing expenses / acquired customers

You absolutely must include all related expenses, including staff salaries associated with marketing campaigns, software costs, consultancy fees, and any other related overheads. 

Let’s illustrate this using an example of possible monthly expenses on marketing:

In the example above, the company spends $162 on average to acquire each new customer across all marketing channels.

What is a good customer acquisition cost?

Wondering how to figure out if your calculated result aligns with market standards? Well, there’s no definitive answer or a universally accepted gold standard. Everything here hinges on the specifics of your business and the industry you’re operating in.

For instance, one Gartner report stated that the average CAC for technology companies with annual revenues under $250 million stands at $27,000. At first glance, this might seem steep. But consider that customers like these could very easily buy a solution worth millions of dollars.

Let’s contrast this with an e-commerce company in the food and beverage sector, where the average CAC is only $53 .

To shed some light on the extent of these differences, here are some other CAC benchmarks from various industries:

• Automotive: $592
• B2B SaaS: $239
• Business Consulting: $533
• Legal Services: $749
• eCommerce: $86
• IT & Managed Services: $454
• Pharmaceutical: $187
• Transportation & Logistics: $510
• Manufacturing: $723

It’s worthwhile to explore them, but remember that every company has its unique operational nuances. Your primary reference should be your own historical data and a desire to achieve the lowest possible figure.

Techniques for more comprehensive CAC analysis

While we already highlighted that CAC is generally calculated from the cumulative costs of acquiring customers from all marketing channels, it’s flexible enough a metric for other analyses.

Analysis of specific marketing activities

For instance, you can determine the CAC precisely for specific marketing efforts such as SEO. In this case, you should include expenses such as SEO and outreach tool costs, salaries for SEO managers and content writers, consultancy fees, and other related SEO expenses. If your team purchased a paid SEO course or attended an SEO conference during this period, those expenses should also be counted.

Sometimes your CAC calculations for SEO can be inaccurate. This is because of the specific nature of this marketing channel. Not all your SEO efforts will pay off immediately, and in the current month, you may witness results influenced by investments made in previous months. 

Analysis of individual customer segments

You can also analyze CAC through customer segmentation. See the examples below:

• Initial CAC: The expenses required for acquiring a new customer for the first time.
• Renewal CAC: The financial commitment necessary to ensure a customer continues their cooperation (for example, they might buy a license for the next month or continue to use your services).
• Reactivation CAC: The money invested in re-engaging a customer, especially one who might have previously discontinued your services.
• Market CAC: The cost of customer acquisition from a specific geographical or industry segment.
• Product CAC: The costs directly associated with attracting customers for a distinct product offering.
• End users CAC: Customer acquisition cost based on the number of actual users, not the number of customers. For example, if you sell software, one company might purchase several licenses for multiple individual users.

What is the relation between CAC and CLV?

Sometimes, when calculating CAC, it can feel like your aspirations for customer acquisition are too high or that your marketing efforts aren’t fully paying off. But have you considered that your customers might buy from you more than once? This is especially crucial for e-commerce companies, which sell products that people buy regularly, like food, cosmetics, clothing, etc.

This is where another metric, Customer Lifetime Value, plays a vital role.

Customer Lifetime Value (CLV) captures the total revenue a business can expect from a single customer throughout their tenure as a buyer.

So, what is the difference between CLV and CAC?

CAC represents the company’s investment into gaining a new customer, which is made up of marketing and related costs. CLV provides a projection of the total revenue a business can reasonably expect from a single customer throughout their buying relationship.

Imagine you’ve just opened a coffee shop. To encourage people to come in and try your coffee, you’ve invested in various marketing activities. This includes colorful flyers distributed throughout the neighborhood, sponsored social media ads, local SEO, and more. 

Now let’s combine the costs of these campaigns. Let’s say you spend $5 for every new customer that walks through your door. This $5 is your Customer Acquisition Cost (CAC).

Here’s where the magic begins. Once people begin tasting your trademark coffee, the overwhelming majority of them are smitten. Over a year, let’s say that one of your regular customers spends $200 on coffee, snacks, and pastries. That total annual spend is their Customer Lifetime Value (CLV).

This example clearly illustrates the fundamental principle of business profitability. That is, your CAC should always be less than your CLV. If you’re investing $5 in marketing to bring in a new customer, and that customer eventually spends $200 over time, you’ve achieved a hefty return on your initial investment.

Why is measuring CAC important for your business?

Customer Acquisition Cost is a metric that, when precisely measured, can help guide the success of your business. If you’re still not sure how relevant it is to your business, here are four pivotal aspects to consider:

1. Data-driven decisions

CAC offers concrete data, guiding businesses towards informed and strategic decisions. Suppose the CAC of your marketing efforts was surprisingly high last quarter. What is the most precise way to analyze what went wrong? One sensible way would be to calculate CAC for each marketing activity separately (just like the SEO costs we mentioned above), and then find out which activity was less profitable. 

If any of these activities resulted in a noticeably higher CAC and you’re shooting for the lowest possible cost, you must consider future activities carefully. You might want to drop activities with a high CAC and devote more effort to ones that yield better results.

2. Enhanced return on investment (ROI)

By being precise, regularly assessing, and strategically aiming to diminish CAC, you stand a much greater chance at boosting your ROI . This process extends well beyond cost-saving. Efficiency is also a major factor. Recognizing and harnessing the most cost-effective customer acquisition methods does more than just lead to prudent financial resource conservation. It also pivots marketing strategies in the direction of channels that promise — and deliver — the most robust returns.

3. Strong bargaining tool for marketing teams

CAC can be a pivotal point of discussion between the marketing department and upper management. 

Imagine being a marketing department head in a company trying to navigate through a crisis. While this is happening, the executive team might heighten their customer acquisition expectations from the marketing team while slashing the marketing budget. Arming yourself with concrete data means accurately homing in on and presenting the CAC. This empowers you to negotiate effectively. It also helps you show the precise resources required to achieve the desired customer acquisition targets

4. Valuable insight for investors

Investors often resort to CAC. It’s considered across the board as a trusted metric for gauging a company’s health and potential for growth. By examining CAC, investors can discern the depth and quality of a business’s existing customer relationships. They can dig into the nitty gritty of these numbers to find out if the company already has a good enough system for customer acquisition. Simply put, with more concrete data, investors can make more informed investment decisions.

Three proven strategies to reduce the customer acquisition cost

1. increase customer satisfaction to sell them more.

One of the best ways to improve CAC is by cultivating loyalty among existing customers. To get loyal customers, conduct regular satisfaction surveys to understand their expectations and needs. 

You should adjust your offerings based on this feedback. Membership programs that offer discounts to frequent customers can also be effective. A notable example is “Starbucks Rewards,” which gives members special perks and discounts. Impressively, Starbucks’ current number of program members is about 29 million, and they account for about 50% of the company’s sales.

Don’t forget to run PPC campaigns that target your existing customers. This is a great way to remind them about your company, and even encourage them to learn more about your new products. PPC campaigns are sure to be a successful investment, especially considering that the chance of selling to an existing customer is much higher (between 60-70%) than selling to a new potential customer (between 5-20%).

Building loyalty not only encourages customers to purchase more frequently but also makes them more likely to opt for higher-tier packages or premium products.

This strategy enhances CLV and does well to lower your overall CAC and maximize the ROI on each customer acquired.

2. Improve website conversion rates to optimize traffic value

Boosting your site’s conversion rates is essential to maximizing the value derived from your current website traffic . Leveraging tools like Google Analytics can be invaluable. These tools make it possible to monitor specific user actions and highlight crucial metrics; notably shopping cart abandonment rates. Doing a deep dive into this data can reveal insights about your landing pages’ effectiveness, including its ability to draw in visitors and prompt them to explore further.

When optimizing your pages, make sure to cater to the basics: fast loading speed, responsive mobile-friendly layout, and secure encryption protocol. All of these combined create a positive page experience , which impacts both your organic rankings and conversion rate. Pages that are a hassle to interact with force users to leave before engaging with your page copy, so be proactive about fixing any critical technical issues on the page. Dedicated tools like SE Ranking’s Website Audit can help you do just that.

Run a/b tests to see how minor (or major!) tweaks in the text copy or page layout impact conversions. When analyzing data, pay attention to all the essential metrics for your business. Your intermediary conversion rate may increase, but if the users you bring on board don’t become your customers over time, it won’t help your CAC. If this is the case, keep experimenting. Also, when revamping a page copy, mind the risks associated with losing organic traffic whenever search engines dislike the changes made. If this happens (and organic search is a major source of traffic you rely on), be ready to undo all the changes.

You can sync GA with SE Ranking to track all essential metrics on a single dashboard. Also, SE Ranking’s Rank Tracker lets you do deeper research and helps you spot the exact keywords that lost their top-ranking positions. 

3. Carefully analyze customer data 

Remember that sales is the most important part of marketing, not clicks or views. Now, suppose you want to evaluate the effectiveness of your SEO efforts for an IT company. Tools like Google Analytics, Google Search Console, and SE Ranking can help you single out pages getting the most views or how they rank in search. 

But you might find that your most popular pages attract mainly IT students who want to improve their programming skills. This is an issue because you’re trying to reel in customers looking for support from an IT company.

By supporting organic traffic information with additional data on your customers in a centralized data warehouse or CRM, you can see which pages are giving you the most qualified leads, and which contribute to your CAC score.

CRM systems or data warehouses are powerful because they enable companies to do all sorts of important tasks. This means tracking customers, combining metrics from multiple sources, monitoring their journey through the marketing funnel, and recording their purchasing patterns. This wealth of information deepens your understanding of each customer’s interaction with your brand. It also helps you optimize your website and craft expertly targeted advertising campaigns.

Critical factors impacting customer acquisition cost (CAC)

When analyzing CAC, understand that it can fluctuate based on the situation at hand.

• Company age: New companies often face higher CACs due to upfront marketing investments and the time needed to establish a foothold. But it’s still important to understand that initial investments are a key part of your company’s growth. This lends itself to the fact that CAC should be evaluated by its potential long-term (never short-term) returns.
• Expansion into New Markets: Even seasoned brands can see an uptick in CAC, especially when branching into new markets. This is when it will take time for the right marketing activities to generate loyal customers.
• Seasonality: If your company sells swimwear in Europe, for instance, CAC will clearly be lower in the summer than in the winter. Conversely, if you sell winter jackets, CAC will probably be lower in the winter. One interesting case is B2B companies, where CAC often increases during the summer season due to vacation periods. Because of this, many best practices suggest that comparing results from the same period in the previous year is more insightful than contrasting individual quarterly results.
• Economic situation: If the situation in your industry has deteriorated, you shouldn’t expect your CAC to decrease. One good example of this is the crisis in the technology market, which has led to many layoffs. According to The Challenger Report , in 2022, the tech industry increased layoffs by 649%! This is the highest figure in several decades. It’s an alarming example of why adapting to the current market conditions is paramount, to say the least. You need to set goals that you can realistically achieve in the market. 
• Unforeseen Events: Events like natural disasters, economic downturns, or global pandemics can have an unforeseeable impact on CAC. Many companies from sectors such as tourism, gastronomy, or hospitality experienced this during the recent COVID-19 pandemic.

The takeaway? Remember that a higher CAC doesn’t necessarily indicate an inefficient marketing department; numerous external factors can influence it. That’s why you need to monitor market conditions on a regular and set realistic objectives. This is how you form a balanced perspective rather than narrowly focusing on numbers.

Many companies fail because they don’t have a firm grasp on the various costs of getting a new customer. 

We hope this article has helped you see the importance of CAC and CLV in measuring marketing success. When you pay close attention to this metric and analyze it wisely, the process of growing your business becomes more straightforward and manageable.

Sign up for our newsletters and digests to get news, expert articles, and tips on SEO

By Ioana Cozma | September 20, 2023

Customer Acquisition Cost: How to Calculate CAC, Analyze and Reduce It

What is customer acquisition cost, how to calculate customer acquisition cost, total costs: what goes into your cac calculation, cac period: how cac relates to clv.

7 Ways to Reduce Customer Acquisition Cost

How to Optimize Your ROI with Lower CAC

It’s obvious you can’t have a business without clients.

But that doesn’t mean you should let your customer acquisition cost drain your profits.

The solution is understanding the exact figures and how to trim them down.

And you’re on the right page for that. We’ll discuss:

• How to calculate and analyze your CAC accurately
• Neat customer acquisition cost examples
• 7 Actionable steps to cut down CAC to optimize your ROI

Let’s get straight to it.

Customer acquisition cost (CAC) is a growth metric that defines the amount of money your business spends for each potential customer to purchase your product.

Therefore, CAC gauges how efficient your sales process is, measuring your overall profitability.

• Low customer acquisition costs: Entail a good business model and sales process. After all, you’re spending less to gain more.
• High customer acquisition costs: Your business model, sales process, or marketing strategies could be improved because you’re paying too much for too little.

To solve top customer acquisition challenges , let’s look at what goes into calculating CAC.

To determine your customer acquisition cost, use this basic formula: Customer Acquisition Cost equals the total expenses during a certain period divided by the total new customers gained in that period.

Here’s the customer acquisition cost formula in a nutshell:

CAC = Total cost of acquiring new customers/ Number of customers acquired

But while calculating customer acquisition costs seems simple, it’s definitely not easy.

There are three variables to consider in this CAC formula:

• Total sales and marketing costs
• Number of new customers

The number of new customers is the easiest variable to quantify.

But you have two more issues to consider:

• Total cost: If you don’t assess all the expenses comprising the total cost of your customer acquisition efforts, you might end up with a lower CAC than in reality. And that means you can’t make the necessary changes to decrease your cost per customer acquisition.
• Period of time: The customer acquisition cost calculation changes significantly if you take the long-term view. That’s why it’s important to understand how CAC relates to customer lifetime value (CLV).

Let’s review these issues below.

Let’s jump straight into it.

Include all sales and marketing expenses, from how much you pay your teams to how much you pay for each marketing tool.

Because your goal is to optimize your profitability. After you understand all the expenses behind your initial investment, you can:

• Gauge the precise ROI for each customer acquisition channel and pinpoint the most cost-effective ones.
• Optimize your marketing and sales strategies.

So, you don’t want to miss any hidden expenses behind your costs of customer acquisition.

Sales and marketing costs include:

• Social media marketing
• Paid advertising costs
• Content marketing
• Sponsorships
• Employee salaries (including commissions and bonuses) for your sales and marketing team
• Outsourced lead generation services
• Customer relationship management (CRM) platforms
• Marketing automation tools
• Overhead costs, such as rent, utilities, business licenses, and more
• Analytics platforms
• Other sales and marketing optimization software

Warning: These variables are affected by internal and external variables.

External Factors

External factors that affect the cost per customer acquisition include:

• Your competition: If your business operates in a competitive niche, you must spend more money on your sales team, software tools, and marketing. That’s because you need to invest more to stand apart from your rivals.
• Market saturation: This variable defines the degree to which the market is filled with similar products and services. A higher market saturation entails including more (or higher) costs into your customer acquisition cost formula. That’s because people have too many options to choose from.

Internal Factors

Your customer acquisition costs may be influenced from the inside. Here are some variables to consider:

• Your pricing strategies: If your price packages are too high, you may attract fewer customers, translating into a higher CAC. Therefore, you must tweak those packages for different customer segments.
• Your overall customer retention strategy: Let’s say you offer a low starting price to hook new customers, but increase your fees in the long run. In this case, the average customer will give up your products or subscriptions to your company, advising other prospects to avoid your brand. A bad reputation makes it harder to attract new customers, thus leading to increased CAC.
• Your customer communication: You may spend heaps of money to develop intricate marketing funnels, SEO strategies, or sales pitches for lead generation. But if you don’t follow up with qualified leads, all this money will be spent in vain, thus increasing overall CAC.
• Your employee turnover: If your company gains a negative reputation, which causes you to lose money and investors, your solid employees will change jobs. Thus, you’ll need to invest more in building and shaping a new sales team .

Let’s say you have a CAC of $25. Is that good or not?

The answer is that it depends.

If that customer for whom you paid $25 makes one purchase and brings you a lifetime value of $10, your CAC is exorbitant.

If the same customer brings you a $3,000 ROI over multiple purchases, the same $25 CAC can be considered low.

Let’s analyze two examples.

Imagine a subscription-based music streaming service. The company invests $500,000 in advertising for a month and successfully gains 50,000 new subscribers. The CAC here is $10. On the surface, that might seem like a minor expense, especially when subscribers are paying $7.99 per month for the service.

But what if most of your current customers use the service’s free trial for one month and then cancel? The CLV for many of these users will be $0.

If, however, a segment of those subscribers stays with the service for an average of 2 years, the CLV for those subscribers would be approximately $191.76 (24 months x $7.99). So, spending $10 to acquire a customer that brings in nearly $192 over their lifetime is a fantastic deal.

Now consider a local fitness gym. It spends $200,000 on promotional activities, including discounts, free trials, and advertising to attract 2,000 new members, translating to a CAC of $100.

Members pay a monthly fee of $50. If the average member sticks around for just 2 months, the CLV is $100, merely breaking even with the CAC. But, once adopted, gym memberships often become longer-term commitments due to motivation, routine, or even contractual agreements.

Suppose the average member stays loyal to the gym for 1 year. In that case, the CLV becomes $600 (12 months x $50), making that initial $100 CAC a wise investment.

Lesson learned: While acquiring customers is essential, retaining them for longer time periods enhances their lifetime value, making your initial acquisition costs more justifiable. So, if you want to flourish your online store, you need to constantly improve the eCommerce CAC strategy as well as monitor the CLV-to-CAC ratio.

Why Is CAC Important?

If you read so far, you may intuit that knowing your customer acquisition costs is the backbone of improving your profitability and future success.

And this metric is essential for early-stage investors who assess your net margins.

If your company looks successful and profitable, you will attract more partners to support its growth.

7 Ways to Reduce CAC

If you want to compare your organic or paid customer acquisition results and decrease the budget spent , you must:

• Optimize the expenses behind your customer acquisition costs: Consider all the marketing channels and tactics you use in marketing and sales. Zero in on the winning ones.
• Decrease the payback period: CAC is an expense your business incurs. Your job is to retrieve that cost fast, meaning you must improve customer retention, as well as upselling and cross-selling strategies.
• Factor in your CLV: CLV is an important business metric alongside CAC. As a rule of thumb, aim for a CLV to CAC ratio of at least 3.

Here are seven practical ways to do that:

• Optimize ad spend: Regularly review your advertising campaigns to zero in on the best strategies, hooks, and even colors. Use creative testing to see which ads, channels, or social media influencers yield the highest conversion rates. Divert your budget accordingly to optimize your marketing efforts.
• Leverage user-generated content (UGC): Encourage your customers to create and share content about your products or services. Reviews, testimonials, unboxing videos, or social media posts are organic endorsements, driving trust and new customers without significant spending. Plus, we have successfully used UGC to reduce ad fatigue .
• Use micro-influencer marketing: Power up your pillars of customer acquisition strategy with engaged micro-influencers rather than targeting influencers with huge followings. Basically, you’re shooting two birds with one stone because micro-influencers are cost-effective, but their connection with their audiences leads to higher conversion rates. And that’s how you optimize your marketing spend.
• Improve onboarding and user experience: A smooth and intuitive customer journey can improve conversion rates. Thus, you get fewer drop-offs and a lower customer acquisition cost .
• Connect with your audience: Explain how your products and services work so customers can choose wisely and remain loyal to your brand. Use product comparisons, answer all their questions, and provide solid customer support. Nurture your audience with email marketing campaigns or follow-up phone calls, depending on your business model. And always consider their feedback to refine your products and strategies.
• Use retargeting campaigns: It’s often more cost-effective to retarget visitors who’ve already interacted with your website but have yet to convert. Use retargeting ads to remind these potential customers about your offerings.
• Invest in SEO: Optimizing your website for search engines ensures a higher ranking in search results. That means more potential customers will see your website and possibly convert. Besides, organic search traffic is more value-for-money than paid ads. And it can bring in a significant portion of new customers.

A deep understanding of your customer acquisition metrics helps you optimize your budget and skyrocket your ROI.

This article explained how to calculate customer acquisition costs and seven ways to balance them with the customer’s lifetime value.

And they work.

But finding the precise mix of strategies can be tough if you lack the expertise.

inBeat Agency can help.

We have successfully used UGC, micro-influencer marketing, and a slew of non-conventional techniques to decrease CAC significantly for countless clients .

In NielsenIQ’s case , a mix of TikTok UGC ads decreased consumer fatigue and slashed CPAs by 75% across all channels.

We can take the same data-driven, results-focused approach with your company.

Book a free strategy call , and we’ll discuss customized solutions that fit your company.

Want more examples of successful influencer marketing strategies ? Check out our case studies .

Learn More About:

• Customer Acquisition
• Optimization
• Customer Experience
• Data & Analytics

How to Improve Your Customer Acquisition Cost and Grow ROI

Do you know what it costs your company to convert a visitor into a customer? In this article we outline effective ways to lower these costs and optimize your return on investment.

Key Takeaways

By the end of this article, you should have the knowledge and resources to “check the box” in these areas…

• What customer acquisition cost is and why it’s a critical business metric
• How to measure and benchmark CAC for SaaS and ecommerce businesses 
• The most effective ways to reduce your customer acquisition cost so your ROI is higher

What is your customer acquisition cost? It’s a powerful metric that can tell you a lot about the health of your business.

Every business school student learns there are only four ways to increase sales revenue:

• Get more customers
• Increase prices
• Increase the amount of the average transaction
• Increase the conversion rate of visitors to customers

Marketers condensed the formula by combining the last two tactics, and a prominent copywriter popularized the recipe as “The only three ways to grow any business,” but it’s not a new concept.

Get more customers, charge higher prices, and sell more to each customer… those are the basics of revenue growth, and that’s been the case since commercial transactions began.

It’s not the complete picture, though.

There’s another way to boost the bottom line. It’s a straightforward and sensible means of getting more ROI , but it sounds too much like accounting to get the notice it deserves. The method considers this question: Do you know what it costs to gain a new customer or client?

If you don’t know the answer, then reading this article and taking action on the suggestions could leave you smiling all the way to the bank.

What is a customer acquisition cost?

Customer acquisition cost, or CAC, measures how much a company spends to gain a new customer. In past decades, it was difficult to track how effective marketing and advertising campaigns were at gaining customers. But in today’s world of highly targeted ads and clear view of customer behavior, you can measure your CAC with accuracy in most cases. 

And knowing your CAC helps your business to make smarter decisions about growth. Is it worth investing in that paid ad campaign on a social media platform? Is your website content paying off in sales? You won’t know until you measure your customer acquisition cost. 

Total customer acquisition cost has many components:

• Cost of your sales team 
• Cost of your marketing team 
• Your ad spend
• Technical costs, especially for SaaS businesses
• Creative costs  
• Inventory costs for ecommerce businesses 

And lowering your CAC means you earn more from each transaction, increasing your profit margin and return on investment. 

Use this formula to calculate your return on investment

Return on investment (ROI) is arguably the most important metric in business. It’s entirely possible for a company to get plenty of sales, but still lose money.

If it costs you a dollar to earn a dime, then your business is in trouble. Successful entrepreneurs never lose sight of the stock market adage “ buy low, sell high .”

If you’re wondering how to improve ROI, reducing your customer acquisition cost can be very effective. Companies often focus on increasing sales, but devote little or only sporadic attention to cutting expenses. Everyone loves to feast, but few enjoy dieting. That’s a mistake.

This is where those fact-loving bookkeepers and accountants come in handy. The numbers they crunch can help keep you on track with your marketing strategies. Listen to them.

How to calculate customer acquisition cost

Calculating your customer acquisition cost (CAC) can be an eye-opening exercise, and it’s not a difficult task. The basic formula is to divide your total sales and marketing expenses for one month by the total number of new customers acquired that month (or whatever period of time you choose). That number is the amount of money it costs you to acquire one new customer.

CAC calculation can be broken down even further by marketing channels to understand what marketing initiatives are driving new sales and customers, and providing the lowest CAC and highest ROI.

Use this formula to calculate your customer acquisition cost

To leverage the CAC concept even further, calculate your average customer lifetime value (CLV). To do that, multiply the average yearly (or monthly) order total per customer times the number of years (or months) the average customer continues to order from you.

If your eyes are glazing over just thinking about those terms, don’t worry. We’re not going to take the math any further than we’ve already gone. 

Our aim here is to talk about ways to lower the cost of acquiring a new customer. That will have a positive effect on ROI, no matter how closely you can calculate the metrics. It is good to have a reference point to monitor, though. To get started, all you need is a best-effort approximation.

Here’s what we’ve determined thus far:

• The higher your ROI, the healthier your marketing efforts, and thus business
• You should consider customer value in light of average total per-customer purchases over the buying lifespan of the customer (CLV)
• Lowering the customer acquisition cost is good for ROI

Let’s get specific about CAC for two industries where it really matters – ecommerce and SaaS businesses. 

Cost of customer acquisition ecommerce

Ecommerce businesses need to calculate CAC accurately to ensure you’re not spending more to gain a customer than you’re receiving in profit – that means your business is unsustainable. 

How much money do you need to earn from each customer to make your business profitable? Your CAC ecommerce will tell you that. 

Average customer acquisition cost ecommerce

The average small ecommerce business spends about $58 to acquire a new customer, according to Shopify . But that figure varies widely depending on your industry, business size, and the type of customer you’re seeking. 

For example, if you’re a luxury retailer, you’ll spend more to acquire your customers, but you can also charge more for your products, so your profit and ROI will be larger as well. 

Ecommerce businesses can calculate a more accurate CAC by taking the cost of goods sold (COGS) into account – that is everything that goes directly into making your products, like labor costs and materials. Add those costs to your marketing spend, divided by your number of new customers, and you’ll have a more accurate CAC ecommerce number. 

Reducing your ecommerce customer acquisition cost

If your customer acquisition cost in ecommerce is high, first you’ll need to uncover what is causing that imbalance. Digging into the data to discover whether it’s due to low conversion rates or pricey marketing is essential. 

A good rule of thumb is to spend between 5-8% of your business’s total budget on marketing. If you’re exceeding that, look for ways to bring your spend down to lower your CAC. You can try to rely more on organic traffic sources and content, look for less expensive marketing platforms, and target potential customers better. 

If you’re not spending too much on your marketing, but your CAC is high, the cause could be ineffective marketing and ads. Low conversion rates will also hurt your customer acquisition cost, so making your marketing work better without spending more money will reduce CAC and increase your ROI. More on these strategies is coming below!

Cost of customer acquisition SaaS

Customer acquisition cost is a vital metric for SaaS businesses (especially startups) to track and understand. Since the whole SaaS business model is based on customer lifetime value, knowing how much you’re spending to get a customer in the door helps you develop a sustainable pricing strategy. 

Average customer acquisition cost SaaS

It’s difficult to cite a dollar amount for SaaS customer acquisition costs – different businesses have different pricing and cost models. 

Instead, look at the ratio of your Customer Lifetime Value to Customer Acquisition Cost. If your LTV and CAC are equal, then you’re not making any profit – and your company is currently unsustainable. Ideally your LTV:CAC ratio would be about 3:1 so you’re getting three times more out of customers than you spend to bring them in. 

Reducing your SaaS customer acquisition cost

Adding a customer referral program can be a great way to gain leads for SaaS companies without increasing marketing spend. Referral customers have a CAC of $0, so getting more of them over time lowers your overall acquisition cost. 

User acquisition cost is another variable if you use some sort of freemium model. Are you spending a lot of marketing dollars to bring in users who don’t end up paying you anything? That can work if your paying customers have a high LTV, but keeping all these costs in balance is essential to sustainable growth. 

One way to get more revenue out of your paying customers without increasing CAC is adding more value to your product – and ensuring those additions are what your customers truly value. You can determine what they would pay more for by simply asking them in surveys and focus groups and work to improve the customer experience . 

And reducing churn in addition to marketing costs means you’ll spend less to acquire customers and keep them longer, increasing that LTV to CAC ratio even more. Increasing retention reduces the total cost you need to spend on gaining new customers, since you’re holding onto more of the ones you already have. 

How to improve ROI and conversions

Your business is not like every other business, so there will be tactics you can use to lower CAC that wouldn’t work for other companies. This isn’t an exhaustive list – it’s simply a starting point to inspire you. 

Let’s look at some of the most effective tactics ecommerce and SaaS businesses can employ to drive customer acquisition costs down and ROI up.

Increase your conversion rate optimization (CRO)

This is the granddaddy of all CAC reduction strategies. An ecommerce website can make changes tonight that will cause tomorrow’s revenues to grow like crazy.

Consider this: For the sake of simplicity, let’s say your average daily sales are $12,000, your average sale is $10 (1,200 sales per day), and your average conversion rate is 3%. After reading this article, you engage The Good for our Conversion Growth Program™ to make some optimizations to your site. Consequently, your conversion rate (CR) bumps up to 5% (not impossible).

Assuming traffic to your site remains constant (40,000 visits per day), that 2% CR increase gave you about 800 more customers and $8,000 extra dollars in sales per day. That’s an example of why paying attention to numbers is critical. In this case, tweaking conversion rate by 2% resulted in a 67% increase in sales! 

Running your own CRO audit for ecommerce is easy (and even fun!). When your conversation rates go up, your CAC goes down – so this exercise can have a big impact on your business. 

Get more organic traffic to your website

Organic traffic isn’t free, but it can be much less expensive than paid traffic. Let’s look at our prior example. If you can boost daily traffic with SEO from 40K to 50K while getting that 2% boost in CR, the numbers will look like this: 50K x 5% x $10 = $25,000. Increasing your conversion rate is lighting a fire under your revenues, and adding traffic is like adding fuel to that fire.

Those two tweaks more than doubled your daily revenue! Once again, you must consider the cost of making those changes when you compute monthly CAC, but the long-term result is likely to be impressive.

That’s why I love what we do at The Good. I get to see clients realize spectacular results from what seems like minor adjustments. No, I can’t guarantee working with us would double your revenue… but I’ve definitely seen it happen. Snow Peak saw a 149% increase in year-over-year revenue after working with us – check out their case study for details. 

Want to tackle this task yourself? Listen to our Drive and Convert podcast’s breakdown on what traffic will look like in 2022 so you can set yourself up for success. 

Write better copy

Stronger, more persuasive copy can be the catalyst for improved conversion rates, higher average sales, more frequent sales, better reviews, more referrals… the list goes on and on. 

This is an area where you may need to forego your own opinions and the opinions of management. Don’t let the management or marketing team edit the power out of a copywriter’s work. Yes, even a broken clock is correct twice per day, but there’s a simple way to find out what works best: extensive testing.

Set up an A/B split test on a landing page to compare your copywriter’s suggestions to management’s edits. Test to see which works best. Make another change. Test again. Rinse and repeat. 

If management consistently beats your writers, bravo! Maybe you need to invest in better writing. If writers beat management, heed the lesson. Every manager is not the wordsmith she fancies herself. Sorry to break the news, but it’s true – we see it all the time. Management interference may be a leading cause of insufficient sales.

Copywriting is an area where it’s possible to sharpen your CAC metric without incurring any additional expense. You’re already paying for the work. Just do what it takes to make it more effective!

Why customer acquisition cost is a critical benchmark

We’ve looked at the best three no-nonsense ways CAC first-aid can do wonders for ROI. There are other tactics you can employ, but these are the ones I like to look at first for ecommerce and SaaS companies.

Additional ideas are doing a better job of identifying your audience (which will help your copywriters construct more effective messaging), cutting down on excessive overhead expenses, getting customer service involved in the process, and decreasing the load time of your website.

If you want to find out what you need to do to improve your CAC, at a high level, then get your Stuck Score™ today.

Once you get enthused about tracking customer acquisition costs, you’ll see potential ways to hone your metrics further peeking out at you from every corner of the business. 

Want more ways to level up your ecommerce skills, create more effective marketing campaigns, and hit your growth targets? Sign up for our Ecommerce Insights newsletter!

Enjoying this article?

Subscribe to our newsletter, Good Question, to get insights like this sent straight to your inbox every week.

About the Author

Jon macdonald.

Jon MacDonald is founder and President of The Good, a conversion rate optimization firm that has achieved results for some of the largest online brands including Adobe, Nike, Xerox, Verizon, Intel and more. Jon regularly contributes content on conversion optimization to publications like Entrepreneur and Inc. He knows how to get visitors to take action.

High Value Customer Acquisition Case Study [With Dylan’s Candy Bar]

How dylan’s achieved greater engagement, loyalty & profits, sweet results.

Executive Summary

• In this Case Study, we’ll cover how Dylan’s implemented BuyerGenomics’ Predictive Marketing Automation (PMA) platform to solve problems that traditionally takes months, in a matter of days . As a result, Dylan’s time, energy, and investment was focused on taking action and generating conversions .
• Mike Ferranti and Kevin Cohen discussed and illustrated how the Best Customers You Have Today are actually the root of The Answer to Acquiring Net New Customers that not only spend more , but more often than the rest.
• Cohen elaborated on specifically how Dylan’s developed a dramatically deeper view and understanding of the customer, developed new unique cohorts that explained the heterogeneity that existed in their customer base, and identified in high resolution who their Most Valuable Buyers really were — which then drove the target definition of for net new customers.

Table of Contents

• The Business Situation –  While Dylan’s was generating high consumer traffic, they lacked the high-value, repeat buyers that would drive their business.
• The Approach  – BuyerGenomics designed an intelligent, actionable data-driven campaign that specifically targeted net new customers who spent most like the best of their current base.
•  Our Methodology  – Within just three weeks, Dylan’s was able to generate a clear view of its customer base and implement a \”Buy-A-Like\” acquisition campaign.
• The Solution  – A multi-step omni-channel campaign was used to reach the right customers, at the right place, at the right time – driving engagement and understanding the motivating factors that led customers to purchase.
• The Results  – Dylan’s experienced massive increases in new valuable customer acquisition, conversion rate, average spend, and repeat purchase rate.
• The Future  – Dylan’s continues to grow as a vibrant, dynamic business, and BuyerGenomics continues to support Dylan’s growing high-value customer acquisition campaign.

Did Dylan’s Have a Problem Worth Solving?

The Business Situation: High Consumer Traffic & Trial, Low Customer Loyalty

Dylan’s one-time buyers: high traffic, low customer loyalty.

Dylan’s One-Time Buyers: High Consumer Traffic, Low Customer Loyalty (Cont’d)

The Approach: BuyerGenomics Buy-A-like Acquisition

BuyerGenomics’ Strategy

• Launch a customer intelligence platform on BuyerGenomics to rapidly enable the accurate quantification and targeting of high-value opportunities.
• Launch a targeted prospecting campaign that utilized the most advanced forms of customer intelligence, machine intelligence, and automation.
• Shift the mix of net new customers to those who spend more and are more likely to become repeat customers.
• Implement a multi-channel approach.

Our Methodology: The 70, 20, 10 Axiom

“70% of the marketers success comes from getting the target right, 20% of success comes from getting the offer right, and 10% comes from getting the creative right.”

Rapidly Produce Highly Actionable Customer Intelligence

• The range of available intelligence and insights we have available is truly astounding, relative to all previous experience. We know exactly who our MVB really is, and we don’t rely on anecdotal narratives like we used to.
• Cohen provided examples of demographics, psychographics, lifestyles, purchasing behaviors, channel behaviors, predictive analytics, and much more.
• Who is the customer?
• How should we talk to them?
• How to engage them over time?
• How to avoid stagnation and increase repeat purchases? (Today, 1-time buyers make up the bulk of customers)
• How to build the direct to consumer relationship?
• How to drive in-store retail traffic?

Rapidly Create Actionable Loyalty Measures

Discern What Makes the Customers More or Less Homogeneous

Move From Initial Data Capture to “Buy-A-Like” Acquisition in Three Weeks

• Centralize online and offline data.
• Create a 360 degree view of the customer.
• Perform optimal target intelligence to define the MVB.
• Match the target with Buy-A-like targeting to acquire high potential new customers.

Buy-A-Like Targeting

Buy-A-Like Targeting (Cont’d)

The Solution: Omnichannel Campaigns “Surround” Buy-A-Like Prospects

Omnichannel Campaigning – Drive Response and Understand Motivations for Responders & Converters

Design Direct Mail Creatives [That Worked]

The Results: Sweet Success

The Numbers Behind Dylan’s Scaling of Profitable Customer Acquisition

• 145% of New “Most Valuable Buyers” acquired vs. Goal.
• Over 225% Conversion Improvement (on 30% of Investment).
• Over 50% Increase in Average Spend.
• Over 63% Increase in Repeat Purchase Rate.

How Dylan’s Can Scale Up High Value Customer Acquisition

How Dylan’s is Scaling Profitable Customer Acquisition

The Future: Just Desserts

Next Steps: Autonomously Grow Lifetime Value and Profit with Machine Intelligence

• Prospects – Not yet customers, signed up for an email newsletter, etc.
• Actives – Individuals currently engaged and/or spending with you.
• In Market – Buyers currently shopping for your products and are prepared/likely to buy again.
• Faders – Subjects no longer purchasing at the rate their customer profile suggests they can.
• At Risk – Buyers most likely to stop spending with your brand and fall into attrition.
• Inactives – Customers who have ceased purchasing your products.

Conclusions 

Recent posts.

Mastering the New 2024 Email Deliverability Standards: Staking Your Place in Gmail and Yahoo Subscriber’s Inboxes

The 3 Immutable Laws of Email Marketing

What meta advertising is best for driving sales growth, unlocking customer sentiment: buyergenomics’ heartbeat revolutionizes insights.

How Google Measures Store Visits… (And is it Accurate?)

What percentage of sales should my marketing spend be?

The full price customer: how to get & keep them, one-time buyers: the biggest retention problem in retail commerce.

3 Critical Priorities for New CMO’s

8 marketing tasks that can be automated (save time and get strategic with marketing automation).

Solving the One-Time Buyer Problem

Reveal your true customer & drive growth..

• Generate more email revenues using AI to predict the next purchase by individual.

96.7% of BG Users drive material incremental sales by trying BuyerGenomics, free . If you later decide to sign up your 300% ROI is Guaranteed.

Free Access. Unlock Your Growth. Guaranteed.

In submitting my Free Access request I agree to the BuyerGenomics Terms & Conditions .

Lowering customer acquisition cost and driving growth for a medical device company

A medical device company reached out to The Simple VUE to assist them in using data to understand their customers, lower customer acquisition costs, and drive sales growth of their products.

Customer Profiling

Understanding the characteristics of customers to better engage them through the right channels.

Market Prioritization

Finding markets with the most customers that fit their ideal customer profile

Lower Customer Acquisition Costs

Lower cost and drive growth by targeting new markets and customers with the right message

Our client had limited visibility into finding markets with similar customers and did not have a data-driven strategy to engage their potential customers in new markets.

By utilizing 3rd Party data, which contains key data points for every household nationwide (spending habits, media consumption tendencies, etc.), we were able to empower our client to use the power of customer segmentation to make important decisions on growth and marketing.

Our platform seamlessly integrated data from our client - merging it with the national household-level database - to allow for detailed insights into their current customer population, identify their "ideal" customer profiles, where to find more of their ideal customers, and how to efficiently drive customer acquisition.

The results of the customer profiling project completely reshaped our client's understanding of their customer base. They believed that their core customers were middle-class families with kids; the results showed that over 60% of their customers did not have children

Results also showed that ~50% of their customers make over $100k annually; this statistic kept them from lowering the prices of their products  

Expanded into 250 new markets across the United States

Redeveloped their marketing strategy for targeted marketing and engagement

Created Direct Mail, IP targeting and other campaigns at the household level

Project Overview

Expand sales by identifying and prioritizing new markets for expansion but contain costs

Through Customer Profiling and Market Prioritization project, we were able to derive insights into their customer base, identify their ideal customer, and identify markets with the highest concentration of their ideal customers.

The results of the customer profiling project completely reshaped our client's understanding of their customer base  

Ready to do more with your data?

If you have questions or you’re ready to discuss how The Simple VUE can help you empower your organization, talk to an Analytics Consultant today.

Thank you! We'll follow-up with you as soon as possible!