Customer Acquisition Costs
Posted in Uncategorized on March 14th, 2010 by adminOk, yes, this post may be a bit ‘beneath’ several of you, but in the words of Christina Agilera we’re ‘Getting Back to Basics’ today.
I’m continually amazed that there are people who are running (sometimes profitable) web properties who can’t tell me what their customer acquisition costs (CAC) are.
As the name implies, this is what it costs for you to acquire a new customer. While any real meaningful analysis would need to include the lifetime (or annual) value of a customer (LVC), we’re saving that for our next post.
So, Why Should I Know my Customer Acquisition Costs?
Once you know what your current CAC is, you can use that to evaluate the validity of new customer acquisition methodologies, campaigns within your existing strategy, or more specific/granular tactics and their effect on this number.
Obviously, when taken with your LVC, it will allow you to determine when a specific strategy or tactic is a bad fit for your market or your current offering within that market.
So, how would one go about calculating their own customer acquisition costs?
This is pretty simple, but it’s (costs of acquiring customers over a given period/customers acquired)
The only ‘art’ in all of this is determining what the total costs were for acquiring customers. Well, like many things this will depend.
Direct advertising costs are obvious, as are the salaries of those that work in a marketing or advertising capacity for your company. In addition marketing materials made to support existing customers (and encourage future business) should be included as well.
Some, more conservative, marketers also included the ‘loaded costs’ or ‘fully loaded’ costs of the marketing personnel. This includes the office space, pcs, phones, admin, medical, parking space, etc. of the salaried marketing execs working with you. Depending on your state and your benefits this usually runs between 1.4 – 1.9X their salaries. You can play with this to see how conservative or aggressive you want to be.
Tune in next week when we discuss, your Lifetime Customer Value!
Leave a comment — It’s dofollow after all!
Hi Ted,
This is a GREAT article – I hope you don’t mind – I published an excerpt on our site – and linked back to your blog for people to read the full version. We offer information – from the practical to the profound for women in business.
I love SmallBizTrends.com – and that’s where I found this. GREAT article – thanks again for the valuable advice.
Cheers,
MB
Do you have a formula for figuring out CAC? Would it be advertising costs / new customers?
MB,
thanks for the kind words. feel free to use whatever you want off of the site. you of course get a ‘dofollow’ link back for commenting…i’m also thinking about maybe a resources area for people to put their links.
a word of advice, if you want the most oomph possible for your link make your name the keyword phrase you want to rank for in the search engines…..like, “Advice for Businesswomen” (or whatever). For an example look at “fargo web design” comment below yours.
peace,
t
Fargo,
thanks for making the comment relevant!
check out the article — maybe i need to bold it — it would be *all* your allocated advertising costs.
if you are being very conservative it would include your fully loaded costs of all your personnel who work on marketing (which would be salary plus allocated overhead — typically about 1.5x their salary).
t
Fubarrio,
I am impressed with your presented ideas! You surely have an excellent mind.:) Though, I don’t know exactly what words to use to thank you but I must say I learned a lot. Keep going!
Nice idea,, but i wonder this is efective or not…
Customer acquisition cost is the cost associated with convincing a consumer to buy your product or service, including research, marketing, and advertising costs. It is a major key, customer acquisition cost should be considered along with other data, especially the value of the customer to the company and the resulting return on investment.
Agree with your great view indeed that “Once you know what your current CAC is, you can use that to evaluate the validity of new customer acquisition methodologies, campaigns within your existing strategy, or more specific/granular tactics and their effect on this number”.Worth to read your blog and just want to say that i appreciate your article.Thanks dude for sharing and all the best of future.
Hi Fubarrio,
The idea of Customer Acquisition Cost (CAC) is also an important factor in CRM software. Without knowing the CAC, a company could probably lose the money instead of making profit, in spite of getting new customers. Thanks for the idea.
Nice post, I fact I work in this business since two years and still not know what CAC was till I read this post.
thanks for the valuable info.
Hi,
Really great post i never think about this earlier, CAC would be nice way to find out how much we are investing behind each customer we get into our business and how to get more customers at lower CAC, but i would like to know if there will be any simple calculator (made in excel or any other spread sheet s/w) that will help us to calculate it in easy steps. I hope you will help us further
thanks in advance.
Regards
John
hey john,
perry marshall has a simplified cac calculator linked from his site
Customer Acquisition Costs is very important to know. If you know Your CAC you can give a calculative quote otherwise you will make a loss.
I have never taken the Customer Acquisition Costs into consideration, Reading your article makes me realise that i have to consider this. We do online marketing and this has a cost related to it.
It depends on many factors that what should be customer Acquisition costs, if customer if long term, u are ready to spend more to get that and lower your prices, if thats one time, you have to be on your budget as well as ROI terms
Good article. Keep on the good job. Customer Acquisition Costs is very important to know. If you know Your CAC you can give a calculative quote otherwise you will make a loss.
customer Acquisition costs depends on the category you are in. Few business categories have really high customer Acquisition costs because there is a lot of competition.
Good article! Though, as a freelancer, I only use SEO and e-mail to acquire new clients… so how can I calculate my customer acquisition costs? I’m not doing anything with AdWord or other kinds of expensive advertising!
Customer Acquisition Costs is very important to know. If you know Your CAC you can give a calculative quote otherwise you will make a loss.
website bouwen …..does that mean ‘website development’ in dutch?….anyways, what is your time worth and how much time do you spend on SEO? ever pay for links? ever pay for lists of sites with dofollow links? regarding email it depends on how you are doing email. most people use email to cultivate return business….some people use it for moving someone from a lead to a customer.
so, are you giving away a free report in dutch to those that are interested in website bouwen? (whatever that is!
) and then sending them email over a period of time to educate them or convert them to a customer?….you’d need to track each one of these costs and the conversion rates at each one of these steps (including initial lead capture) to get a true/accurate picture.
Agreed… CAC is absolutely critical and btw… great guide!
i read the article I am impressed with your presented ideas! You surely have an excellent mind.:) Though, I don’t know exactly what words to use to thank you but I must say I learned a lot. Keep going.It is a major key, customer acquisition cost should be considered along with other data, especially the value of the customer to the company and the resulting return on investment.thanks for sharing..