Every company is looking for ways to increase revenue and decrease costs. Unfortunately a lot of times marketing is looked at more as a line item or the executive team doesn't know what questions to ask in order to ensure they are getting the right ROI from their marketing team to increase revenue.
The buying process has changed and now most buyers educate themselves prior to making a decision by going to a companies website and doing their research before engaging the sales team. As a result marketing is the face of your organization and they create your brand, determine how your prospects are educated and can help make the buying process easier for that prospect.
For this reason, executives needs to ask the right questions to determine where to spend money and understand the ROI of their marketing efforts. Customer Acquisitions Cost (CAC) is one of the vital metrics they every executive should know. The Customer Acquisition Cost (CAC) is a metric used to determine the total average cost your company spends to acquire a new customer.
How to Calculate It: Take your total sales and marketing spend for a specific time period and divide by the number of new customers for that time period.
Sales and Marketing Cost = Program and advertising spend + salaries + commissions and bonuses + overhead in a month, quarter or year
New Customers = Number of new customers in a month, quarter, or year
Formula: sales and marketing cost ÷ new customers = CAC
Sales and Marketing Cost = $300,000
New customers in a month = 30
CAC = $300,000 ÷ 30 = $10,000 per customer
What This Means and Why It Matters: CAC illustrates how much your company is spending per new customer acquired. You want a low average CAC. An increase in CAC means that you are spending comparatively more for each new customer, which can imply there’s a problem with your sales or marketing efficiency.
Learn about more metrics that every executive should know
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