Customer Acquisition Cost (CAC)

A business’s Customer Acquisition Cost (CAC) is like the price tag attached to getting new customers on board. It’s all the money spent on marketing, sales, and other stuff to bring in fresh customers, divided by the number of new customers acquired in a certain time.

Here’s how you figure it out: You add up all the expenses for things like ads, promotions, and sales team salaries. Then, you divide that total by how many new customers you got during that time. The result tells you how much it cost, on average, to get each new customer.

Knowing your CAC is super important because it helps you see if your marketing and sales efforts are paying off. It’s like checking if you’re getting your money’s worth for all the work you’re putting in to attract new customers.

But it’s not just about knowing the cost; it’s also about comparing it to something called the Lifetime Value of the Customer (LTV). This is how much money a customer is expected to spend with your business over their entire relationship with you.

By comparing your CAC to the LTV, you can see if you’re spending too much to acquire customers compared to what they’re worth to your business in the long run. This helps you make smarter decisions about where to invest your money and how to boost your profits.