222% More for Customers? How to Lower Your Customer Acquisition Costs
Worried about the rising costs of acquiring new customers?
You're not alone.
Customer acquisition costs have steadily increased over the past decade, with some reports showing a 222% rise between 2013 and 2022.
This trend spells trouble for e-commerce businesses who rely on attracting new customers to drive growth and profitability.
The good news is that with the right strategies, you can counter rising acquisition costs and continue acquiring new customers without breaking the bank.
This guide will explain what customer acquisition cost is, provide benchmarks to shoot for, and most importantly, outline proven ways to decrease your CAC.
By making customer acquisition a priority, setting goals, and optimizing your marketing spend, you can keep customer acquisition costs under control.
Read on to learn how.
What is Customer Acquisition Cost?
Customer acquisition cost (CAC) is the total cost of acquiring a new customer. It represents the average cost to acquire a single paying customer.
CAC is calculated by dividing your total sales and marketing costs for a given period by the number of new customers acquired during that period.
Simply put:
CAC = Total sales and marketing costs / Number of new customers
For example, if you spent $100,000 on sales and marketing in a month and acquired 1,000 new paying customers that month, your CAC would be $100 ($100,000 / 1,000).
The costs included in calculating CAC typically include:
- Advertising costs (Google, Facebook, print, etc.)
- Marketing agency fees
- Sales team salaries
- Sales commissions
- Events costs
- PR costs
- Content creation costs
- Website costs
Essentially, CAC covers all expenses involved in getting customers to first purchase from your business.
Understanding your CAC provides insight into how efficient and cost-effective your customer acquisition efforts are.
A low CAC means you are likely acquiring customers in a cost-efficient way.
A high CAC may indicate inefficient spending or that your offerings need adjustment to reduce costs.
The Customer Acquisition Cost Formula
The customer acquisition cost formula is simple:
CAC = Total Marketing and Sales Cost / Number of New Customers Acquired
Let's break this down:
Total Marketing and Sales Cost: This includes all expenses related to acquiring new customers, such as advertising costs, sales commissions, sales payroll, and marketing agency fees.
Number of New Customers Acquired: The number of new customers that became paying customers over a given period of time. This is not the total number of sales, but the number of new unique customers added.
For example, let's say over the past month:
- You spent $5,000 on Facebook ads
- Paid $2,000 in sales commissions
- Had marketing agency fees of $1,500
That's a total marketing and sales cost of $8,500
Over that same period, you acquired 100 net new paying customers.
To calculate CAC, you would plug these numbers into the formula:
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