Customer Acquisition Cost (CAC) - What is it and how to calculate it
Posted: Sat Dec 28, 2024 7:09 am
It is important for businesses to understand the effectiveness of advertising costs for each promotion channel: where attracting customers is profitable, and where it costs more than expected. The CAC metric is used for evaluation. We tell you how to calculate it and use it to optimize marketing costs.
What is Customer Acquisition Cost (CAC)
CAC is a metric that shows how much a business spent on acquiring customers who bought a product. That is, Customer Acquisition Cost is the cost of a buyer.
CAC should be calculated for each marketing channel used. This way you can understand where it is more profitable to attract customers.
CAC is sometimes confused with Cost Per Action (CPA) — the cost of a target buy engineering contacts list action. But these are different metrics, since a target action is not always a product purchase.
Let's give an example. The target action is registration on the site.
Option 1: the user registered but did not buy (thinks or chose a competitor). The target action is achieved, CPA can be calculated. But the business did not receive a client, so CAC cannot be determined.
Option 2: a user who registered on the site but did not buy was sent several warm-up letters and offered a bonus. He made a purchase. CAC in this case will be higher than CPA, since after registration additional warm-up costs were required.
Option 3: the visitor registered and immediately ordered the product. For this user, CAC is equal to CPA.
In practice, businesses usually calculate data for all leads and sales, not for one user. Therefore, CAC will be equal to CPA only in the case of 100% conversion from lead to purchase, which is practically unachievable. In all other cases, CAC will be higher than CPA.
It is also important to consider that a user may perform several target actions on the way to conversion (for example, click on a banner, then follow a link in an email). CAC takes into account their total cost before the first purchase.
What is Customer Acquisition Cost (CAC)
CAC is a metric that shows how much a business spent on acquiring customers who bought a product. That is, Customer Acquisition Cost is the cost of a buyer.
CAC should be calculated for each marketing channel used. This way you can understand where it is more profitable to attract customers.
CAC is sometimes confused with Cost Per Action (CPA) — the cost of a target buy engineering contacts list action. But these are different metrics, since a target action is not always a product purchase.
Let's give an example. The target action is registration on the site.
Option 1: the user registered but did not buy (thinks or chose a competitor). The target action is achieved, CPA can be calculated. But the business did not receive a client, so CAC cannot be determined.
Option 2: a user who registered on the site but did not buy was sent several warm-up letters and offered a bonus. He made a purchase. CAC in this case will be higher than CPA, since after registration additional warm-up costs were required.
Option 3: the visitor registered and immediately ordered the product. For this user, CAC is equal to CPA.
In practice, businesses usually calculate data for all leads and sales, not for one user. Therefore, CAC will be equal to CPA only in the case of 100% conversion from lead to purchase, which is practically unachievable. In all other cases, CAC will be higher than CPA.
It is also important to consider that a user may perform several target actions on the way to conversion (for example, click on a banner, then follow a link in an email). CAC takes into account their total cost before the first purchase.