Calculate your Customer Acquisition Cost (CAC) to understand the efficiency of your sales and marketing efforts.
What is Customer Acquisition Cost (CAC)?
Customer Acquisition Cost (CAC) is a crucial metric for businesses, especially those with subscription-based models or recurring revenue. It represents the total cost incurred by a company to acquire a new customer over a specific period. Understanding your CAC helps you evaluate the profitability of your customer acquisition strategies, optimize your marketing spend, and forecast future growth.
How to Calculate CAC
The formula for CAC is straightforward:
CAC = (Total Sales & Marketing Costs) / (Number of New Customers Acquired)
To calculate CAC accurately, ensure you include all relevant costs associated with acquiring new customers during the period you are measuring. This typically includes:
Salaries of sales and marketing teams
Advertising and promotion expenses (e.g., Google Ads, social media ads, print ads)
Content creation costs
Software and tools used for sales and marketing (e.g., CRM, marketing automation platforms)
Agency fees or contractor costs
Overhead costs allocated to sales and marketing departments
The 'Number of New Customers Acquired' should correspond to the same period for which you are calculating the costs.
Why is CAC Important?
Profitability Analysis: CAC is often compared with Customer Lifetime Value (CLV) to determine the long-term profitability of acquiring customers. A healthy business typically has a CLV significantly higher than its CAC (e.g., CLV:CAC ratio of 3:1 or higher).
Marketing ROI: It helps assess the effectiveness of different marketing channels and campaigns. High CAC from a particular channel might indicate inefficiency.
Budgeting and Forecasting: Knowing your CAC allows for more accurate budgeting for sales and marketing activities and better financial forecasting.
Business Strategy: It informs strategic decisions about scaling, pricing, and target customer segments.
Example Calculation
Let's say a company spent a total of $50,000 on sales and marketing efforts in a quarter. During that same quarter, they acquired 100 new customers.
CAC = $50,000 / 100 customers = $500 per customer
This means that, on average, it cost the company $500 to acquire each new customer during that period.
function calculateCAC() {
var salesMarketingCostsInput = document.getElementById("salesMarketingCosts");
var newCustomersAcquiredInput = document.getElementById("newCustomersAcquired");
var resultDiv = document.getElementById("result");
var salesMarketingCosts = parseFloat(salesMarketingCostsInput.value);
var newCustomersAcquired = parseFloat(newCustomersAcquiredInput.value);
if (isNaN(salesMarketingCosts) || isNaN(newCustomersAcquired)) {
resultDiv.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (newCustomersAcquired <= 0) {
resultDiv.innerHTML = "Number of new customers acquired must be greater than zero.";
return;
}
var cac = salesMarketingCosts / newCustomersAcquired;
resultDiv.innerHTML = "Your Customer Acquisition Cost (CAC) is: $" + cac.toFixed(2) + " per customer";
}