“How much am I willing to spend to get a customer?”. The answer to this question will largely determine a company’s advertising strategy: giving an approximate cost to everything you need to find new customers is a step that must be taken. Otherwise, you risk going overboard with the initial expenses and jeopardizing the profit margin you set for yourself. It is precisely to avoid all this that the concept of CAC – Customer Acquisition Cost was created: in this article, we will see what it is, how to calculate it, and the best strategies to improve it.
What Is The CAC – Customer Acquisition Cost
By definition, the Customer Acquisition Cost is the expense you spend to convince a potential buyer to buy your products or services, or, in simple terms, how much it costs you to get new customers. All marketing means and methodologies must be counted within it, from one-to-one calls to flier printing and online strategies, including email marketing, the use of social networks, the implementation of SEO techniques, advertising campaigns, and last but not least, the time spent on research and study for their performance.
How Is The CAC Calculated?
The CAC is useful not only because it allows you to understand if the result obtained was worth the initial investment but also because it is very simple to calculate: it is the result of all the costs incurred to acquire more customers divided by the number of customers acquired during the period in which the purchase was made. Total expenditure made on marketing (to reach customers)/ Customers caught with that expense. Notes: CAC is different from CPA (Cost per Acquisition). The latter measures the cost used to obtain a contract – to request more information, a demo, or to download the content of interest – which will not necessarily turn into an actual customer later.
For example, for one year, your company spent 10,000 euros on advertising your product and got 500 new customers. The CAC corresponds to 10,000 euros / 500 new customers = 20 euros. Your company has spent €20 on advertising costs to acquire a new customer. Is the result positive or negative? It depends on the profit the acquired customer will bring you, i.e., how much he has spent and will spend in the future on your products. Does one of your customers usually pay approximately 5,000 euros during your business relationship? Congratulations, the initial investment has paid off!
The Best Ways To Increase Your CAC Value
Advertising campaigns are only sometimes successful, but they need continuous adjustments and improvements to find the ideal customer. To improve your CAC value, here are some useful methods.
Refine The Conversion Metrics On The Site
As for the active part, it is possible to set certain objectives on Google Analytics and perform A / B tests to understand which advertising strategy works best to reduce the site abandonment rate, improve the speed of web pages, optimize the site for mobile, and much more.
Strengthen Customer Value
Increasing value for the customer means creating interesting content for which users are willing to leave their email for more information or directly to buy.
Improve Customer Relationship Management
Every successful company that wants to ensure that a customer remains a customer for a long time implements a CRM (Customer Relationship Management: it can be a system for optimizing activities and processes always to be available to customers and potential customers, but also to differentiate your offer and customize it according to the specific characteristics of each buyer.
The CAC is a very interesting metric that can tell much about your company’s ability to convert investments into real profit. However, there are others available for understanding the effectiveness of your marketing and commercial strategies.