You can’t put a price tag on happiness, love, or peace of mind…but you CAN put it on a customer.
For most businesses, the name of the game is growth. You want more revenue, more contracts, more sales, and so on. The simplest solution is to get your products or services into more hands, right? More customers = more profits.
Yes. And also, no.
A key metric your business should be evaluating on the reg is Customer Acquisition Cost (CAC). This is basically how much money you spend to convince someone to patronize your business. It’s a pretty simple formula: Divide the amount you spend on marketing, sales, advertising, etc., by the number of customers, and that number is your CAC.
Now, compare that number to your revenue. How does it stack up? If your customer acquisition cost is more than the revenue you’re bringing in, your business isn’t going to be in business for very long.
Any competent marketing professional or agency worth their salt should be keeping a close eye on these metrics and reporting the numbers to you on a regular basis. (If they aren’t, fire them.) On the other hand, if you're a small business owner whose marketing is all done in-house, make it a point to pay closer attention to these calculations. You might be (unpleasantly) surprised by what you discover.
How Do I Determine My CAC?
As we said above, the formula itself is pretty simple.
1. Make a list of all your costs associated with customer attraction over a determined period of time. This could include: email marketing, social media campaigns, salaries for people on your sales or marketing team, television/print/radio advertising, and production costs (brochures, business cards, flyers).
2. Add up the number of new customers you acquired during that same period of time.
3. Now, divide Expenses by Customers to get your CAC and compare it to your revenue.
How Can I Improve My CAC?
Even if you’re feeling pretty good about your results, there’s always room for improvement. Here are a few methods to consider:
Understanding your Customer Acquisition Cost is an essential metric for long-term sustainability and profitability. Whether you have hopes of scaling, expanding, or even selling your business - the CAC will play a critical role.