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Customer Acquisition Cost (CAC)

Oct 18, 2022

Customer Acquisition Cost

Customer acquisition cost (CAC) is the total cost associated with acquiring new customers. CAC is a key indicator of the overall health of your sales and marketing efforts and can identify areas where there might be room for improvement and optimization. 

In addition to understanding the exact return on ad spend (ROAS) of each of your marketing efforts, CAC keeps an eye on your overall efficiencies to ensure you’re not spending more on marketing than you’re making in new business sales. If you find your CAC to be quite high, it might be time to evaluate the types of channels and programs in your marketing mix, and reallocate funds or resources to more efficient channels.

How to Calculate Customer Acquisition Cost

To calculate your customer acquisition cost, divide the sales and marketing costs (like ad spend) associated with acquiring new customers by the number of new customers acquired.

Customer Acquisition Cost Formula

How to Lower Customer Acquisition Cost

Like many marketing KPIs, there are multiple ways to decrease CAC. The bottom line is, the more efficiencies you can find in your sales and marketing programs, the more optimized this metric will become. A few ideas:

Optimize for new vs. returning visitors

Providing a personalized experience for new vs. returning site visitors is a great way to increase the likelihood of a conversion and ensure that your marketing dollars are well spent. A personalized experience for returning visitors shows that you care and understand their unique needs and place in the buying process and are evolving the experience for them as your relationship changes. Providing an optimal experience for new visitors solidifies that your brand is able to meet them where they are and provide a stellar first purchase experience that hopefully grows into further transactions. Take it a step further and personalize the experience for anonymous visitors to really make sure that every ad dollar that you are spending counts.

Reduce bounce rates

Losing visitors after viewing a single page on your site (bounce) happens, but it contributes to CAC so like any marketing cost, the goal is to minimize it. Ensure that you’re providing a consistent and cohesive ad-to-website experience, that is, make sure your ads accurately reflect the brand and offer that visitors will receive once landing on your site or page. 

If your high bounce pages are showing a reasonable duration of engagement, it’s a good signal that there's an opportunity to improve your site navigation or site content - or most likely both.

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