How to Lower Your Customer Acquisition Cost for Maximum ROI

Customer Acquisition Cost - CAC

When you’re just starting a business, it’s tempting to attract clients by whatever manner you can, regardless of the cost, time, or energy involved. However, as you learn and grow you’ll realize that balancing the overall cost of customer acquisition with ROI is essential. To do that, you’ll need to know your customer acquisition cost (CAC).

How to Calculate Customer Acquisition Cost

To calculate CAC, you just need to divide all of the sales and marketing costs involved with acquiring a new customer within a specific timeframe. In case you’re not familiar, we’ll go over the CAC formula here:

CAC = \frac{(Total\ Marketing)\ +\ (Sales\ Expenses)}{Number\ of\ New\ Customers\ Acquired}

To put it ultra-simply, if Karl spent $10 to market his lemonade stand and got ten people to buy his product in one week, his cost of acquisition for that week would be $1.00.

  • $10 / 10 = $1.00

What Is Your Customer Acquisition Cost?

That’s a pretty simple example above. Of course within an enterprise level company, CAC is far more complex:

  • Total Marketing – this should incorporate your marketing staff, your agencies, your assets, your software licenses, and any advertising or sponsorship that you incorporate into acquiring a new customer.
  • Total Sales Expenses – this should incorporate your sales staff, their commissions, and their expenses.

The other complexity is properly measuring your timeframe in which the customers were acquired. Marketing and sales expenses today do not immediately result in an acquired customer. You’ll need to estimate your average buying journey… where a potential customer becomes aware of your product through to where they actually convert. Often times, this can be months or even years depending on the industry, budget cycles, and negotiations.

This is why it’s critical that you incorporate an inbound strategy that better identifies how prospects heard about you, when they first connected with you, through to their actual conversion date.

How to Lower Your Customer Acquisition Cost

Once you know how to calculate your CAC, you’re going to want to lower it so that you’re seeing healthy profits from each customer. Another thing you’ll want to do is retain existing customers — customer acquisition can cost up to seven times more than selling to existing customers, after all!

For more tips on optimizing your customer acquisition cost, GetVoIP‘s infographic below shows five innovative strategies. For example, creating engaging and meaningful content can help you build a bond with customers that gets them to their purchase point quicker. Add in some killer CTAs and you may find customers purchasing on the first piece of content they consume!

You can also use marketing automation to your advantage. For example, Birchbox subscribers receiving a welcome email followed by a string of emails on beauty tips and makeup tricks. Many of these people haven’t even made a purchase yet, but the company is offering a lot of free value upfront. You can also use chatbots, automated personalized emails and social media campaigns to boost efficiency.

You can find these and more tips below. By knowing and improving your CAC, you’ll be able to see more return on investment, and that’s always a great thing to see!

How to Calculate Customer Acquisition Cost