Customer Acquisition Cost

Customers are great!

Customers are what make businesses run. Regardless if you are a free game, an enterprise software company, or a product on the shelves of Walmart, your customers generate the revenue you use to run your business.

But customers aren’t free. Even Google, one of the most dominant companies of our time and a household brand name, spent $14.4B in 2015 on traffic acquisition costs. The reality is: you have to spend money to acquire customers, and the price you pay for each customer is your Customer Acquisition Cost (CAC).

Your CAC is not just what you spend on advertising! There are many hidden costs that go into customer acquisition, which may include:

  • Discounts and promotions
  • Publicity costs (including PR)
  • Events and conferences

In fact, some of your marketing administrative costs need to be factored into your CAC, especially if you do content marketing. With all of this information, it can be surprisingly difficult to determine your CAC. Still, you need to know your CAC so that you understand if the customer lifetime value (LTV) is more than you pay to acquire the customer. If it’s not then, you are losing money with every customer!

This week we’ll go through the details around CAC and how to calculate it.

This topic was requested by reader Barret T. (Hi, Barret!). If you have a topic you’d like me to cover, just drop me a line.

Quote of the Day: “We’re all somebody’s prospect; we’re all somebody’s customer.” – Chris Murray