What is CAC and why is it important?
Posted: Sat Dec 07, 2024 4:40 am
Understanding what CAC is directly influences your company's profitability. The main reason is that CAC stands for Customer Acquisition Cost , meaning it is a sales metric that indicates how much is being invested to gain each new customer .
Based on the results, it is possible to analyze whether the expenditure is compatible with the sales values generated and, in this way, verify whether your approach is really viable.
What is CAC?
Knowing what CAC is is critical to the financial health of your business. The acronym, which stands for customer acquisition cost, indicates how much your business is equatorial guinea email address investing to win over each customer .
CAC also helps you identify how much profit your business is actually making from each new sale made.
How to calculate CAC?
In addition to knowing what CAC is, it is very important to know the correct way to calculate this sales indicator .
CAC is calculated using the following formula:
CAC = sum of investments / number of customers acquired
The sum of the investments means all the expenses necessary to win over the new client , such as investment in marketing, customer service tools and software , commissions and salaries paid to salespeople, among others.
Bonus tip! Take advantage and download our sales and commission control worksheet and make your day-to-day life easier.
Example of how to calculate CAC
A good way to understand what CAC is and how to calculate it is by using examples.
So, imagine your company spent $10,000 USD in the last month to acquire customers. In the same period, 25 new customers were gained.
Applying the formula, we have the following result:
That is, your company's customer acquisition cost in the last month was $400.00 USD per new customer.
How important is the CAC?
CAC is a key sales metric to measure and help control investments focused on acquiring new customers .
This KPI helps verify that what is spent is actually compatible with what is received with new sales.
For example, a CAC of $400 USD for a $200 USD sale indicates that your company has a higher cost to acquire the customer than the revenue it generates.
In this case, you have the opportunity to review your procurement processes and see what points can be improved , including identifying what expenses can be removed or reduced.
What is the ideal CAC?
To understand which CAC is most comprehensive, it is also important to know what the ideal customer acquisition cost is.
The CAC should always be lower than the sales value resulting from that new customer.
But it is worth noting that there is no predetermined percentage that companies must follow. Each business must consider its particularities and profit margins, depending on its products or services.
Therefore, it is possible to reach an ideal value considering the relationship between CAC and the average ticket, or CAC with LTV (Lifetime Value).
Considering the relationship between CAC and average ticket
This way of reaching the ideal CAC is indicated for companies that work with occasional sales.
A comparison is made between how much was invested in acquiring a new client and how much was spent on the company.
Example: a store that invests $30 USD to gain a customer and makes a sale of $100 USD, this indicates that it has a positive balance of $70 USD. This value can be seen as a good return on investment.
But if the values were changed ($100 USD of CAC and $30 USD of sales), it is necessary to reconsider the strategy.
Considering the relationship between CAC and average ticket
For companies that work with recurring sales, such as subscription services like customer service software , CAC should be compared to all the revenue the customer generates during their relationship with the brand.
Example: If your business spends $100 USD to acquire a customer, but the customer pays $30 USD per month to use your services, on a 12-month contract, this indicates that it generates an annual income of $360 USD for your business.
Considering that this value is higher than the CAC, it is also understood that this is a positive investment for your business.
Based on the results, it is possible to analyze whether the expenditure is compatible with the sales values generated and, in this way, verify whether your approach is really viable.
What is CAC?
Knowing what CAC is is critical to the financial health of your business. The acronym, which stands for customer acquisition cost, indicates how much your business is equatorial guinea email address investing to win over each customer .
CAC also helps you identify how much profit your business is actually making from each new sale made.
How to calculate CAC?
In addition to knowing what CAC is, it is very important to know the correct way to calculate this sales indicator .
CAC is calculated using the following formula:
CAC = sum of investments / number of customers acquired
The sum of the investments means all the expenses necessary to win over the new client , such as investment in marketing, customer service tools and software , commissions and salaries paid to salespeople, among others.
Bonus tip! Take advantage and download our sales and commission control worksheet and make your day-to-day life easier.
Example of how to calculate CAC
A good way to understand what CAC is and how to calculate it is by using examples.
So, imagine your company spent $10,000 USD in the last month to acquire customers. In the same period, 25 new customers were gained.
Applying the formula, we have the following result:
That is, your company's customer acquisition cost in the last month was $400.00 USD per new customer.
How important is the CAC?
CAC is a key sales metric to measure and help control investments focused on acquiring new customers .
This KPI helps verify that what is spent is actually compatible with what is received with new sales.
For example, a CAC of $400 USD for a $200 USD sale indicates that your company has a higher cost to acquire the customer than the revenue it generates.
In this case, you have the opportunity to review your procurement processes and see what points can be improved , including identifying what expenses can be removed or reduced.
What is the ideal CAC?
To understand which CAC is most comprehensive, it is also important to know what the ideal customer acquisition cost is.
The CAC should always be lower than the sales value resulting from that new customer.
But it is worth noting that there is no predetermined percentage that companies must follow. Each business must consider its particularities and profit margins, depending on its products or services.
Therefore, it is possible to reach an ideal value considering the relationship between CAC and the average ticket, or CAC with LTV (Lifetime Value).
Considering the relationship between CAC and average ticket
This way of reaching the ideal CAC is indicated for companies that work with occasional sales.
A comparison is made between how much was invested in acquiring a new client and how much was spent on the company.
Example: a store that invests $30 USD to gain a customer and makes a sale of $100 USD, this indicates that it has a positive balance of $70 USD. This value can be seen as a good return on investment.
But if the values were changed ($100 USD of CAC and $30 USD of sales), it is necessary to reconsider the strategy.
Considering the relationship between CAC and average ticket
For companies that work with recurring sales, such as subscription services like customer service software , CAC should be compared to all the revenue the customer generates during their relationship with the brand.
Example: If your business spends $100 USD to acquire a customer, but the customer pays $30 USD per month to use your services, on a 12-month contract, this indicates that it generates an annual income of $360 USD for your business.
Considering that this value is higher than the CAC, it is also understood that this is a positive investment for your business.