What is Customer Acquisition Cost (CAC)?
The Short Answer
Customer Acquisition Cost (CAC) explained simply
Customer Acquisition Cost (CAC) is how much money a business spends to get a new customer. Think of it as the price tag for each new person who buys from you. It includes all the money you put into marketing and sales, like ads, salaries for your sales team, and any tools you use to attract customers. You figure it out by adding up all these costs over a certain time and then dividing that by the number of new customers you got in that same time.
Real-World Example
The Online T-Shirt Shop
Let's say an online t-shirt shop spends $1,000 on Facebook ads and $500 on a marketing email campaign in one month. In that same month, they gain 100 new customers. Their total marketing and sales costs are $1,000 + $500 = $1,500. To find the CAC, they divide $1,500 by 100 new customers, which equals $15. So, it costs them $15 to acquire each new customer.
Why this matters
Knowing your CAC is key to understanding if your business is making money. If it costs you more to get a customer than they spend with you, you're losing money. It helps you decide if your marketing is working and where you might need to change things up.
Always keep an eye on your CAC. If it's too high, your business won't be profitable. Look for ways to get customers for less money.
Always keep an eye on your CAC. If it's too high, your business won't be profitable. Look for ways to get customers for less money.
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