CAC (Customer Acquisition Cost)
Meaning of the short CAC
You can explain the acronym CAC as well as the cost of acquiring a customer and it is a business metric. Used in conjunction with the Lifetime Value metric to measure a value generated by a new customer. This metric determines what resources are needed to attract a new customer.
Definition: New CAC companies are total costs, whether sales or marketing in order to acquire a new customer within a specified period of time.
What exactly do these costs include?
Marketing expenses, wages, commissions, overheads,…
CAC = (total sales and marketing costs) / number of customers acquired
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Why is CAC so important?
The cost of acquiring a customer is important mainly because you will be able to deduce the success of your business in the future based on the CAC calculation.
The reduction in the value of the CAC means that the company spends money really more efficiently and its total return should be higher in terms of total profit.
What does not count towards the CAC?
Cost of customer success – you should include this form in your CAC ratio, not in pure CAC, because you will definitely want to measure the effectiveness of your teams in terms of acquisition independently.
How to reduce the CAC value?
- Optimize your channel – each year, verify how many visits actually lead to potential customers, how many of those customers lead to opportunities, and how many opportunities return to customers. One possible method of doing this is to use Balfour’s funnel growth method.
- Optimize your pricing strategy – By optimizing your pricing to get your cash back and your CAC back in advance, you can make sure you start making a profit as soon as possible.
- Strengthen the efficiency of sales and marketing expenses – invest money where they have a demonstrable return, so that you do not dispose unnecessarily.
- Involve potential and new customers – reduce the time needed to acquire a new customer to a minimum in the interest of your product.
- Inbound marketing – Using capital to produce content that provides value to your audience is an effective way to bring potential customers through your channel at minimal cost.