Customer Acquisition Cost or CAC is the economic investment that must be made to convert a contact or lead into a customer.
To calculate your customer acquisition cost, you need to take all of your sales and marketing costs (including salaries and other employee-related expenses) for a given period and divide it by the number of customers you acquired in that period.
In Internet businesses where staffing does not need to grow directly proportional to customer acquisition, it is also very useful to look at customer acquisition costs without the cost of staff.
To calculate the lifetime value of a customer, LTV (Life Time Value), you have to analyze the gross margin you expect to earn with that customer during your relationship with them.
Gross margin must take into account any support, installation and phone number identifier philippines maintenance costs and refers to the difference between the selling price of a good or service and the purchasing price of that same product.
It doesn't take a genius to understand that business model failure occurs when CAC (the cost of acquiring customers) exceeds LTV (the ability to monetize those customers).
A well-balanced business model requires that CAC be significantly lower than LTV.
The only thing you need to consider is that you can monetize your customers at a higher cost than the cost you had to acquire them.
With this introduction, you will be able to see the importance of calculating the CAC for your business, so continue with us to learn more about it.
CAC is the sum of the costs for a contact or lead to become a new customer.
Calculating CAC helps a company decide how much of its resources can be profitably spent on acquiring an additional customer.
Don't confuse this metric with cost per action (CPA), as there is a strong distinction between the two.
In ecommerce, cost per action is typically the amount you pay to make a sale, but this applies to both new and returning customers.
You can see how even Google refers to CPA as “the cost you are willing to pay to make a conversion,” but not to acquire a new customer.
CAC, on the other hand, is about acquiring new customers.