Getting Customer Acquisition Cost is a very statistics type, Business growth terms are always involved round Customer and Marketing, Here we shall be exploring best customer acquisition cost formula you need, but first of all, let explained what customer acquisition cost “CAC” Means
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What Is Customer Acquisition Cost?
Customer Acquisition Cost Is refers to the Calculated or Insight amount projected that a business or company spends in the process of acquiring New Customers;
You wondering why that is so important for my business metrics. Remember that fund management is one of the courses every business owner must take to prevent running out of funds to manage the business.
Don’t be nonchalant about it thinking does this matter it just a little penny, even when you have sales and you don’t make profits, Your business is always on its smooth road on a journey of insufficient fund Mess.
That is why we bring this article for you to know the best customer acquisition cost formula. We know the paramount goal of every entrepreneur is to make profits. The Metric, therefore, will reveal the total cost of sales relative to the marketing cost of attracting and converting audience to Potential Customers. Marketing Strategies also requires funds for you to run it, and if you are not good with ratio figures, realize after-sales generated no profits.
Sometimes or most times, you do see some brand running promotions on their products or services, like providing a coupon code to reduce the percentage price of purchasing, or some brands do use the buy 2 get one free strategy, and afterward, you start to wonder how will they make profits. All the above strategies are used as customer acquisition for products sales.
Why Customer Acquisition Cost Is Important
As investors and business owners who have a plan to produce their business to stay relevant in the market for a decade, we do not ignore customer Acquisition Cost in their Business Metrics.
Accountability prevents insufficient fund mess, which has ended up many companies failing; so have you been thinking why is Customer acquisition Cost Important.
To Know Profits Generated
Customer Acquisition Cost Assist the business with analyzing to determine the return on investment revenue generated per customer.
To Identify Best Marketing Channel
When you understand Customer Acquisition Cost, You will figure out the best channel you need to focus on in acquiring new customers. You will be able to figure out that when you calculate your marketing return from the Marketing Costs.
From the calculation, the company will determine the cost-effective channel that helps to acquire customers. It reveals the channel with low acquisition cost and the channel with High acquisition cost, and with a thorough analysis, you can determine and consider the channel that makes your business generate more customers.
Formula To Calculate Acquisition Cost
The formula is not so hard to practice; the short form of the formula is what you can remember off-hand; the Formula symbol is MCC/CA = CAC.
MCC: Marketing Campaign Costs ( This means the total calculated amount spent on a marketing channel related to acquisition )
CA: Customer Acquired ( Total statistics number acquired through the marketing channel)
CAC: Customer Acquisition Cost ( the amount generated after dividing MCC With CA so has to see the acquisition cost per customer )
A Lantern Group of Company run a Social Media ads for their New sneakers Shoe at a total Marketing Campaign Costs of $45,000 at the end of the statistics and sales made C calculated that A acquired a total Sum of 5,000 customers.
How do we calculate the cost of acquiring one customer that is how to calculate the customer acquisition cost ‘ CAC ‘
remember the Formula MCC/CA = CAC
MCC = $45,000
CA = 5,000
CAC = MCC/CA
CAC = 45,000/5,000
CAC = $9
This calculation shows that the company spends $9 per acquiring one customer.
we are going to do a second example now to prove the stated importance of Customer Acquisition cost, which says, it helps to identify the best marketing Channel
We will use the Latern Group MCC Amount, which is $45,000, but this time around, the marketing was run on Google ads and at the end of the statistics and sales made acquired a total number of 15,000 customers. let do this calculation
The formula is MCC/CA = CAC
MCC = $45,000
CA = 15,000
CAC = MCC/CA
CAC = 45,000/15,000
CAC = $3
Can you now calculate the difference out between the two listed examples above? For example, on Social Media Ads, the sum of 45,000 was used, and the Customer Acquisition Cost was $9 while used the same amount to run an advert on the same products on Google ads and the CAC was $3, which shows that on Google ads you can get three customers with the Social Media Ads CAC of $9 so which one of the Marketing Channel is more effective and productive? But remember, without conducting the CAC Calculation, you won’t be able to figure that out; you may be feeling afterward that you are making sales from both marketing channels, but One Marketing Channel is generating More Profits to your business.