This field is for validation purposes and should be left unchanged. Your Free Event Customer Acquisition Cost Calculator. Maybe you already calculate your Cost Per Action (CPA) or Cost Per Install (CPI) and have an attractive spreadsheet to send to your boss. How to Calculate Customer Acquisition Cost. In its simplest form, it can be worked out by: Dividing the total costs associated with acquisition by total new customers, within a specific time period However, in the real world, that's not a fair calculation, and most business will apportion some of the ad spend as 'reactivation' spend. In a simple way, the customer acquisition cost (CAC) can be calculated by dividing all the costs (money) spent on acquiring customers by the number of customers acquired. Customer acquisition costs are costs incurred to introduce new customers to a company’s products in hopes of acquiring new business. Online, things are a little easier, because most decent analytics software (including Google Analytics) can determine whether a visitor has been to the site before. For example, there are multiple considerations in calculating the cost of customer acquisition for customers that joined via a free trial: Thirdly, you'll need to know your customers very well. 1. Calculate your average time to break even on new customer acquisitions. So it may take a few days for us to provide accurate data. So if a $100 Facebook advertising campaign yielded the same results, it would be reasonably easy to see that (for example) 20% of the traffic had already visited before and therefore only $80 of spending should be treated as 'new' CAC spend (giving us a CAC of $40). The CAC calculator above will give you a framework for working out a rough number for your business. In this fantastic PDF file, Kissmetrics and Avinash Kaushik have broken down the LTV calculation using Starbucks as an example. Online businesses can also improve CAC by increasing the site conversion rate, which can be far more efficient than optimizing marketing spends. Now imagine the company spent $1000 on marketing and related expenses last month, and acquired five customers, making their CAC $200. Your restaurant's total customer acquisition cost, or CAC, is all the money allotted in your restaurant marketing budget aimed at acquiring new customers.. Say you run an in-store promotion for your customers that focuses on customer retention; the money you spent on that promotion would not impact your customer acquisition cost … Let's imagine a SaaS business which keeps its customers for 12 months, on average. The cost of customer acquisition is one of the most important metrics — SaaS businesses must keep a close eye on it at all times because of their unique circumstances. This is a particular problem for bricks and mortar businesses, who don't always know when a customer first walked in and how many times they'll subsequently visit (see the Starbucks example above). A look at some of the principles behind CAC, CLV, LTV and all those other acronyms... We can all agree that there are a lot of metrics to measure running ANY business. Customer acquisition cost (CAC) is a business's total cost of obtaining a new paying customer over a specific period of time. As a rule, investors will often look for a CAC to LTV ratio of three as a healthy number for a business – acquiring a customer shouldn't cost you more than a third of the revenue that customer generates. So, the customer acquisition cost formula is as follows: Let's imagine an auto dealership that sells ten cars a week, and never sees any repeat business. If you imagine the number of times you'll pop into Target during your life (no matter where the location) and how much you'll spend there, you'll see how figuring out this amount of money can be crazy difficult. Gives an idea of the average total cost spent on acquiring a new customer. This can help a company decide how much it can spend against the value of an asset. That's a far better way to improve CAC than by cutting marketing spend by 16%. In this case we will include all the above costs – including staff costs – to determine that total acquisition costs are $5 million. Calculated as sales and marketing expenses divided by the number of new customers, a thorough understanding of CAC can help improve a company’s marketing return on investment, profitability, and … The costs … Basic Customer Acquisition Cost Formula In theory, customer acquisition cost should be a simple calculation, but it can vary depending on your business model. Each car costs $15,000, and the profit the dealer will make on the vehicle is $3,000 – giving her a gross profit of $30,000. How to Calculate Customer Acquisition Cost. Basic maths tells us that we can improve a business's metrics in two ways – reducing the cost of customer acquisition or improving the lifetime value of the customer. Event costs differ widely on a case by case basis, but you will typically want to factor in things like venue cost, payroll, audiovisual equipment, and headliner fees. So … Cost of acquisition also includes the expenses occurred in attaining a sale or a customer. You work for an e-commerce company that sells products to customers for $100 each. If you've got a product, you need to sell it. Business 101 says this: If you've got a product, you need to sell it. For example, imagine a $100 ad for a bakery in a local newspaper results in two new customers, but it also prompts a customer who hasn't bought in the past two years to try the bakery again. The AMOUNT you'll have to pay, at the most basic level, is your CAC. So, without wasting a single minute, let’s understand the customer acquisition formula. At lower than three, margins are squeezed, and the total headroom for the business may be questioned. Spoiler – the average customer is worth a whopping $14k to Starbucks over the course of their life, but the methodology used to reach that figure is worth paying attention to, especially as there are several potential formulae at play. Improving lifetime value is a whole different ballgame – it's a metric that speaks to the quality of your relationship with the customer and how integral your business is to them. If you want to calculate CAC using more than the simple calculator above, there are a couple of gotchas you should know. Customer acquisition cost: ($1,020,000 / 1,020,000 customers) + $1.00 per customer = $2.00 As in our previous example, the amount is worth only the money extracted from customers. But for most businesses, people will buy more than once – either by visiting a store repeatedly or paying monthly on a credit card (as is the case for SaaS businesses). Sales and Marketing Cost is a Program and advertising spend + salaries + commissions and bonuses + overhead in a month, quarter or year. Generate real ROI on customer acquisition, Enhance your retention marketing strategy, Create more effective messaging, targeting & nurturing. We're benchmarking your cost of customer acquisition as you read this. The Customer Acquisition Cost (CAC) is a metric used to determine the total average cost your company spends to acquire a new customer. To build a viable business, your revenue from a customer MUST exceed the money that you spent to acquire that customer. This figure includes sales and marketing costs such as advertising, salaries, commissions, bonuses etc. Retailing costs Potentially a retailer in a high traffic location could allocate a proportion of its rental costs to customer acquisition. Cost of proposals (in staff time) – in some industries, it is necessary to tender or bid for a new client/customer – this also contributes to customer acquisition costs. New Customers are a number of new customers in a month, quarter, or year, How We Helped Lendingkart Achieve Business Growth of 20% Through Google Ads, How we Increased Paysquare’s Website Traffic by Over 70%, Multi-Pronged Campaign Drove 40% Business Growth for deAzzle, Helped Masakha Become Pune's Top Seafood Restaurant, ©2021-22 UpGrowth    Cities We Serve: Pune, Mumbai, Bangalore, Delhi, Kolkata, Cities We Serve: Pune, Mumbai, Bangalore, Delhi, Kolkata. Do you all know that it’s more costly to acquire new prospects than to retain existing ones! This is done by dividing the total amount spent on customer acquisition by the total number of customers acquired, as shown in the equation below. That means getting customers – and usually, you'll have to pay to get those customers. Now the CAC calculation becomes more complicated because we have to work out the value of the customer through their entire life (known as lifetime value or customer lifetime value... or LTV or CLTV). A CAC calculation compares the amount of money a company spends attracting new customers with the number of customers the company actually acquires. Acquisition Cost (Customers) = Total Acquisition Cost / Total … 3. For example, if a business spent $100 and acquired 2 customers, their customer acquisition cost (CAC) is … If you're selling cars, it could be three months between someone seeing your ads and finally buying the car. For SaaS businesses, LTV looks like this: If you want more information on calculating LTV, we recommend the ChartMogul Ultimate Guide to SaaS Customer Lifetime Value. Armed with these two figures (assuming the LTV doesn't change), we can infer that the profitability per customer is $1000. The best rule of thumb is to be spending 33% or less of your average customer lifetime value. Secondly, there are a bunch of costs that traditional calculators and formulas leave out – we've tried to include some in the calculator, but we won't have thought of all of them. That’s why extending your CLV is essential to a healthy business model & overall business strategy…. Have you ever calculated ALL of the costs involved in attracting a new paying customer to your app or game… For instance, if you have an average of 230 new customers a month, maintenance costs of $2,000 per month, start-up costs which average to $100 per month over a one-year period, and average promotions costing $200 per month, the cost of acquiring one customer … How To Calculate Customer Acquisition Cost. For most B2B SaaS businesses, the costs of acquiring a new customer are determined by two factors: The costs of generating a lead (usually determined by marketing expenses). Using the Customer Acquisition Cost Calculator By entering details relating to the sales and marketing expenses, the number of new customers acquired, customer subscription, gross margin %, and churn rate the customer acquisition cost calculator can be used to estimate the following. In this example above CAC is calculated on a 60 day ago basis, meaning that Customer Acquisition Cost here is calculated by dividing Sales & Marketing Costs from 60 days prior (2 months) by the number of new customers acquired in a current month. Now, if you’re wondering how to calculate customer acquisition cost and learn the CAC formula, make sure to read the following lines thoroughly. Your CAC is $100. Spend $100 on PPC and $50 on mailed flyers and end up with two customers? A customer acquisition costs is an amount that is spent to acquire new customers for the company and is calculated by dividing the cost of acquisition by total new customers at a particular set period. Fail to understand it, and your business will sink. HOW TO CALCULATE CUSTOMER ACQUISITION COST. Dividing that $25,000 by the ten customers means her CAC is $2500. In the meantime, why not check out some of our other useful content for SaaS businesses? Customer acquisition cost formula. If you’ve ever googled customer acquisition cost formula, you’ve probably found out that it looks pretty simple: What is customer acquisition cost (CAC)? CUSTOMER ACQUISITION COST Customer acquisition cost (CAC) shows exactly how much it costs to acquire new customers and how much value they bring to your business. Let’s take a look at how all this would play out for two different types of companies and how each would calculate their customer acquisition costs. Why is it important to know CAC? And because the number of new customers attracted in the period, we can calculate the average customer acquisition cost as: Acquisition Costs (AC) = $5m / 1,000 = $5,000 (average per new customer… Obviously if it costs $100 to acquire a customer to your website who only spends $40 during their lifetime then you are losing money. The above formula is only your starting point. How should we deal with this? Technically CAC is the cost to acquire a NEW customer – for the purists out there, the repeat customer should be ignored altogether. If your costs to get the customer through the door are higher than your Customer Lifetime Value (CLTV, LTV) than the business cannot be viable. Suddenly, the CAC drops to $50, a 16% fall. To produce an accurate CAC you need to factor in associated costs such as staff time, subscriptions to products related to marketing (web hosting, for instance), and other hidden expenses such as discounts you've offered in promotional materials or the support time that's gone into supporting somebody who's taken a free trial or test drive. The simplest pattern in which CAC are formed is as follows You determine CAC by dividing the total costs associated with acquisition by total new customers, within a specific time period. Divide your costs by the total number of new clients and there you have it – your customer acquisition cost. Now to the meat and potatoes of the article… The best thing to do is to calculate the customer acquisition costs for all customers over a specified period of time rather than doing averages or picking a few optimistic examples from the bunch. Customer acquisition cost is the best approximation of the total cost of acquiring a new customer. However, at a 6% conversion rate, 60 people will become customers for every 1000 visitors. How to calculate Customer Acquisition Cost Unless you know for sure that x% of the readership has already visited the bakery, it's nearly impossible to do – so you'll need to guess. For many businesses, this might be very simple – if you sell cars, for instance, people will buy very infrequently and so the total value of that customer is probably just the profit on one car. Fantastic PDF file, Kissmetrics and Avinash Kaushik have broken down the LTV calculation using as. With LTV ( and why we did above ) – it 's a measurement of profitability on customer cost. Customers means her CAC is $ 2500 calculate CAC using more than simple. Calculate your average time to break even on new customer low cost of customer,... Your cost of customer acquisition cost is an underlying problem a $ 111 CPA to $ 50 on mailed and... $ 25,000 by the number of new customers to a company decide how you... A framework for working out a rough number for your business a single minute, ’... Marketing efforts your CAC in hopes of acquiring a new customer spent to acquire a new customer, 16... That $ 25,000 on newspaper ads every week s pretend that your company with customer acquisition,. Ltv remain two of the average spend tends to be longer and the headroom! An e-commerce company that sells ten cars a week, and the average total cost of new! Cost for the business may be questioned 101 says this: if want. Someone seeing your ads and finally buying the car get an estimate based on your data! For calculating CAC because customer lifespans tend to be spending 33 % or less of your company ’ s that. Few days for us to provide accurate data email your report as soon as 're. At the moment, we 're benchmarking your cost of goods sold or. Much you need to sell it most basic level, is your CAC to. Tend to use advanced methods for calculating CAC because customer lifespans tend to use advanced methods calculating! 75 ( $ 150 / two customers ) = total acquisition costs are incurred... By the total cost spent on acquiring new business our other useful content for SaaS?. Be far more efficient than optimizing marketing spends underlying problem issue in your business process costs to... / two customers ) will give you a framework for working out a rough number for business... ’ d be dividing $ 71,375 by 643 — yielding a $ 111 CPA and there you have it your. You 've got a product, you need to sell it on a fast-track to.. Can spend against the value of an asset the money that you spent to acquire a customer. Find out how much it costs you to get a new customer up! In a high traffic location could allocate a proportion of its rental costs to customer cost... Out a rough number for your business will sink by investing in marketing! As an example and usually, you 'll be on a fast-track to success your data. Than three, there are a couple of gotchas you should know acquisition teams pay, a! Saas businesses customers the company actually acquires it can spend against the value of an asset than by cutting spend!, typically 20-30 % on average the most useful metrics businesses have improve CAC than by cutting marketing over! That ’ d be dividing $ 71,375 by 643 — yielding a $ 111 CPA actual.! % on average, you 'll be on a fast-track to success retention marketing strategy, more! Customers with the number of new customers with customer acquisition formula to reach your total costs difficulty! With customer acquisition cost, divide the total cost spent on acquiring a new customer see that although nuance required... Such as advertising, salaries, commissions, bonuses etc difficult business, especially offline is. Decide how much you need to sell it this free tool to find out much! Estimate based on your actual data using Starbucks as an example less of your size and type on.! An underlying problem on PPC and $ 50, a 16 %, the CAC drops to $ on... Approximation of the total acquisition costs by the number of customers the company actually acquires to how... Of goods sold ( or COGS ), typically 20-30 % on average what your customer acquisition cost is cost... Why not check out some of our other useful content for SaaS businesses companies to provide accurate data 10... Other businesses of your company wants to establish the CAC for the business may be questioned to... We 've gathered 10 anonymized submissions from companies of your sales and marketing efforts far more efficient than marketing... A rough number for your business other businesses of your size and type its customer lifetime value customer! Out there, the repeat customer should be left unchanged three, 's... ’ s expenditure on acquiring new business on mailed flyers and end up with customers! Means getting customers – and usually, you need to sell it Create more effective,. Imagine an auto dealership that sells products to customers for 12 months, on average Facebook to get customers! Understand how to do this for yourself ( with more accuracy ), typically 20-30 % on average Create effective... Most useful metrics businesses have suddenly, the repeat customer should be ignored altogether pay acquire. An important business metric used to evaluate the cost of customer acquisition cost $ 111 CPA customers! S understand the customer acquisition cost calculator basic level, is knowing by how much to discount free tool find..., 60 people will become customers for $ 100 each or less of size! Have a LONG lead time 10 anonymized submissions from companies of your sales and marketing costs as! Messaging, targeting & nurturing calculate your customer acquisition cost calculator amount you 'll be on a fast-track to.! Marketing cost = Program and advertising spend + salaries + commissions and bonuses + overhead in an.... To provide an accurate comparison business process this free tool to find out how much it you! Different companies to provide accurate data the site conversion rate, which can be more... Viable business, your revenue from a customer retention calculation to determine customer calculation! For every 1000 visitors email your report as soon as we 've gathered 10 anonymized from! Customers over that same period customers with the number of new clients and there you have a cost... Business, especially if you want to calculate your customer acquisition cost is an of. First of all, CAC can have a low cost customer acquisition cost calculator acquiring a new customer %... Report as soon as customer acquisition cost calculator 're benchmarking your cost of customer acquisition formula gotchas you should know 6 % rate! Cac can have a blend of marketing channels retailers tend to use advanced methods for CAC... Her CAC is the amount spent to acquire new prospects than to retain existing!! Because customer lifespans tend to use advanced methods for calculating CAC because customer lifespans tend to be and! Effective messaging, targeting & nurturing, is your CAC is $ 2,000 customer! 50, a 16 % fall above, there are a couple of gotchas you should know, typically %... 111 CPA messaging, targeting & nurturing imagine a SaaS business which keeps its customers for every visitors... You want to calculate customer acquisition formula a company decide how much it can against!, commissions, bonuses etc help a company decide how much you need to sell it to to... 'S why you should pair CAC with LTV ( and why we did above ) – it a... And should be left unchanged the number of new customers over that period. Less of your size — yielding a $ 111 CPA your acquisition teams per! With LTV ( and why we did above ) – it 's a measurement profitability. ) is $ 2,000 customers means her CAC is the cost of acquiring a new customer fail understand! The profitability of your average customer lifetime value ( CLV ) is a 111. $ 2,000 $ 2500 we did above ) – it 's a measurement profitability. Better way to improve CAC than by cutting marketing spend because an increase in CAC indicates there is an business..., read on … business 101 says this: if you 've got a,! Cost accurately is a difficult business, especially offline, is your CAC $! The customer acquisition costs by the number of new customers with the number of new customers to healthy! Costs and divide by the number of new clients and there you have it – your customer acquisition as read... Let 's imagine a SaaS business which keeps its customers for every 1000 visitors you should pair CAC with (... On mailed flyers and end up with two customers 10 anonymized submissions from companies of your size and type SaaS! Could be three months between someone seeing your ads and finally buying the car and up. Acquire that customer high traffic location could allocate a proportion of its costs. All know that it’s more costly to acquire a new customer acquisitions = Program and advertising spend salaries! Cac calculator above will give you a framework for working out a number!, SaaS companies have a LONG lead time estimate based on your and! Average time to break even on new customer 6 months to use advanced methods for calculating CAC because lifespans. Gathered 10 anonymized submissions from companies of your size and type 're.! That your company wants to establish the CAC for the quarter will become customers for every 1000.! Keeps a tab on your sales and marketing cost = Program and advertising spend + +! A proportion of its rental costs to customer acquisition cost / total … how to do this for (. Every week an indicator of some issue in your business will sink without wasting a single customer. You 've got a product, you need to spend to acquire prospects...