Advice and thoughts on CAC please
Customer acquisition is of major importance and demands attention as the first stage of the customer life-cycle. Only one variable distinguishes companies that excel at customer acquisition – they have a budget dedicated to customer acquisition activities. Other variables examined - the presence of an executive responsible for customer acquisition, an understanding of the economics of customer acquisition, and the deployment of CRM technologies to support customer acquisition - are not associated with excellence at customer acquisition.
Customers are assets that need to be acquired before they can be managed, for profit, Customer retention is clearly a most important objective in competitive and mature markets. Customer acquisition, however, is still hugely important to companies in many contexts: for new business start-ups, when entering new geographic or customer market segments, when launching a new product or service, when exploiting new applications for an existing product or service, when marketing low involvement products and services, when repeat purchases are infrequent, and when switching costs are low. Also, when markets show growth potential it is strategically important for all players to grow the aggregate market size rather than protect their own customer base through customer retention efforts. There are some businesses in which the constant acquisition of new customers is the only way to survive.
The crucial step for creating an effective customer acquisition strategy is to calculate how much money you should be investing on the various different marketing activities to acquire new customers, and have a granular approach for your budget allocation. This is what we call a customer acquisition cost, or CAC.
The CAC is very important both internally and externally to the company. Externally, it's a key metric that investors are going to be very interested in, especially at an early stage of a business or if there is a new product launch. It allows them to determine a company or new product's profitability by looking at the difference between how much money each customer will bring into the business and the costs of obtaining it. There is growing interest in the economics of customer acquisition. It is clearly in the interest of companies to know the relative cost/benefits of different customer acquisition strategies and tactics. The application of metrics such as customer numbers acquired, average first purchase value, leads-to-sales conversion rates and cost-per-qualified-lead can help distinguish the effectiveness of different acquisition efforts.
Simply put, the CAC can be calculated by dividing all the costs spent on acquiring more customers by the number of customers acquired in the period the money was spent. When calculating your cost of acquisition, you should always take into consideration your risk profile, which is fundamentally based on your expectations of winning new customers for a particular product.
There are lots of strategies you could follow to improve your CAC, which all ultimately boil down to your own overall customer acquisition strategy.
The Customer Acquisition Cost (CAC) of any business plays a very important in defining its sustainability. A business with a high CAC can succeed as much as a business with low CAC. This is exactly when Customer Lifetime Value(CLV) comes into play. To survive with a low CAC, you will need more customers. On the other hand, you will need high CLV if your CAC is high.
I recently wrote about how to increase Customer Lifetime Value (CLV) in your business. I have covered 5 key strategies on increasing CLV with examples of successful companies and how they do it.
Hope this helps.
I'm not sure what you'd like to have answered? Would you mind giving some more context of what you'd like to achieve, or is it just the general question on how to calculate your CAC which is simple. How many clients have you acquired in a given time? Divide it by what you have spent to acquire them. :-)
If your question is not cleared then better to search on Google. All the best