Understanding Customer Acquisition Cost: A Guide by Nomadic Advertising

✔️ Technically Reviewed And Approved By Johnny

Johnny Baskin, CEO and Founder of Nomadic Advertising, is a seasoned digital marketing expert with a passion for innovation, technology and finance. With over 8 years of experience in the SEO industry, Johnny has successfully helped numerous businesses across various sectors such as Healthcare, Fintech, Blockchain, Construction, and more to reach their marketing goals.

July 31, 2023

One of the key metrics many of our clients are curious about is the Customer Acquisition Cost (CAC). When running any kind of marketing or sales campaign you want to keep this metric in mind. Having a good Customer Acquisition Cost can be the different between a successful campaign and a failed one.

What is Customer Acquisition Cost?

Customer Acquisition Cost (CAC) is a business metric that determines how much it costs your organization to attract new customers. It includes all program and marketing spend, salaries, commissions, bonuses, and overhead associated with attracting new leads and converting them into customers. Successful companies aim to constantly reduce the CAC because it’s a sign of the health of your sales, marketing, and customer service programs.

Customer Acquisition Cost Formula

There is a simple formula that can be used to calculate your CAC, the formula is as follows: Customer Acquisition Cost = Cost of Sales and Marketing divided by the Number of New Customers Acquired. For your convience we have included a CAC calculator further down in this blog post.

How to Calculate Customer Acquisition Cost

  1. Choose the time period for calculating. This could be a month, quarter, or year, and it helps you narrow down the scope of your data.
  2. Calculate your CAC. Add together your total marketing and sales expenses and divide that total by the number of new customers acquired during the period. The result value should be your company’s estimated cost of acquiring a new customer.
  3. Compare your CAC to key business metrics. Once you have calculated CAC for your company, you can compare this value against other key business metrics. By doing so, you’ll uncover meaningful insights about your marketing, sales, and customer service campaigns.

Customer Acquisition Cost (CAC) Calculator

Why CAC Matters

Understanding your CAC is crucial for making informed business decisions and predicting how profitable your company would be in the long run. It helps you allocate your resources better and ensures that your business is spending money more efficiently, leading to higher returns.

Common Marketing & Sales Expenses

When calculating your Customer Acquisition Cost (CAC), it’s crucial to consider all the marketing and sales expenses involved. These costs can be broadly categorized into three areas: Labour, Ad Spend, and Software/Tools.

Labour Costs typically involve the expenses related to hiring and maintaining a team of marketing professionals. This can include salaries, benefits, and training expenses. If a company chooses to outsource their digital marketing, these costs can also include the fees paid to a marketing agency or freelancers.

Ad Spend refers to the money a company invests in paid marketing channels, such as social media ads, search engine marketing (SEM), or pay-per-click (PPC) campaigns. These costs can vary greatly depending on the scale and competitiveness of the campaigns.

Software & Tools are another significant cost associated with digital marketing. These could include expenses for customer relationship management (CRM) systems, email marketing platforms, social media management tools, SEO tools, content creation software, and analytics tools, among others. These advanced tools, which can range from hundreds to thousands of dollars per month, are essential for executing effective and competitive advertising campaigns.

At Nomadic Advertising, we’ve already made these investments, so you don’t have to. We use advanced lead tracking to track every prospect, call, form submission, or purchase made on our clients’ websites. This makes it possible to understand which channel brought a sale and the cost to make it happen. This can ultimately help you to calculate your CAC. For more insights into the costs associated with digital marketing and how to measure ROI, check out our article on ROI in Digital Marketing: How to Measure It.

Improving Your Customer Acquisition Cost

There are several strategies to improve your CAC:

  • Invest in conversion rate optimization (CRO): Make sure it’s simple and straightforward for visitors to convert into leads or for leads to convert into customers and make purchases on your site.
  • Add value: Increase customer value by giving customers what’s valuable to them. Collect customer feedback, and whether it’s a product fix, a new feature, or a complementary product offering, do your best to give customers what they’re asking for to make them stick around longer.
  • Implement a customer referral program: If your customer refers you to a warm lead from their network who is already interested in learning about your product or service, their particular CAC will be $0 if they convert. These “free” customers will lower your CAC over time.
  • Streamline your sales cycle: Decrease the length of a typical sales cycle to increase the number of sales you can influence over the course of a year. Use a CRM and prospecting tools to connect with more qualified leads more effectively.

At Nomadic Advertising, we use these strategies and more to help our clients optimize their CAC and grow their businesses. We are results-focused and provide detailed reports with every campaign we run so you can understand your return on investment in detail. If you’re ready to grow your business and get more customers online, contact our team today for a free consultation and proposal.

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