Metrics that Matter: Customer Acquisition Cost

1. Metrics that Matter: Customer Acquisition Cost (CAC)

2. Customer Acquisition Cost is an extremely important metric for growing a sustainable business, but tracking CAC has been a notoriously difficult task. In this article, we'll explore how to calculate your CAC more easily & efficiently.

3. So, you’ve created a business plan, done your market research, secured funding, hired staff, and dialed in your branding. Now you’re feeling the pressure to acquire new customers and ensure rapid growth at all costs. In the fledgling stage of your business, when you’re first introducing your product to the market, this can be a smart move—but it’s not the recipe for sustainable long-term growth. If the uncertainties of the past year have taught us anything, it’s that efficient growth is important in ensuring the health and hardiness of a business. Investors have renewed their focus on profitable business models that can withstand unforeseen market shakeups and economic turmoil. That’s why it’s extremely important for next-generation businesses to understand how much they’re spending to acquire their customers. And we’re not talking about annual estimations or general ballpark numbers. We’re talking about a closeup look at the cost of every new customer acquired. We’re talking about CAC.

4. What Is CAC? Customer Acquisition Cost Customer acquisition cost (CAC) refers to the average amount of money spent to acquire a single new customer. The CAC calculation is done by adding all of your acquisition-specific costs—things like SEO, SEM, PR, social media marketing, sales and marketing salaries and industry trade shows—over a given time period, and then dividing it by the number of new customers acquired during said time period.

5. Why Does CAC Matter? Tracking CAC helps you understand not only how successful your sales and marketing functions have been at attracting new business, but how scalable they are for future growth. If sales is only generating enough income to retain current customers, then you won’t have any money to spend on attracting new ones. And if marketing is spending more money to attract customers than booked new business, then you have a pretty big problem on your hands. CAC is especially valuable when overlaid on other metrics, such as lifetime value (LTV)—we’ll dive deeper into that one soon. Combining these two metrics helps paint a clear picture of your business’s solvency and helps you determine whether you can afford to keep investing in new customer acquisition or whether you need to evaluate and refine your acquisition methods for more efficient growth.

6. Tracking CAC: A Notoriously Difficult Task At face value, the customer acquisition cost formula sounds simple enough. Addition and division. Pretty basic math skills. But when you start thinking about compiling all that data, things quickly become much more complicated. The data that feeds your CAC equation often lives in disparate systems and isn’t normalized. The salaries and commissions of your sales and marketing teams live in your HR system. Your advertising spend lives in your ERP. Your customer count lives in your CRM.

7. On top of that, you probably need to factor in some indirect costs: Travel costs for sales reps meeting with customers (remember when that was a thing?). The cost of the software tools your teams use to track leads and engage customers. The price tags on related hardware and equipment. These costs live deep within your ERP, lumped in with the myriad other costs involved in running a business. And what happens when an affiliate or a non-marketing, non- sales employee is involved in booking business? Or conversely, marketing spend that is not expected to drive direct acquisition (e.g brand strategy, product positioning etc.)? There’s no system that compiles, allocates, and calculates this data for you—it’s always been a people-powered metric, and one that isn’t measurable or accessible in real time. It’s usually something you can get eyes on quarterly—once a month if you’re lucky (and usually a few weeks after the end of the period).

8. How to Track CAC More Easily & Efficiently Mosaic’s platform is connected to all the key data sources that power your CAC calculation. Clear, simple dialog and intuitive components allow you to configure exactly what is included in your customer acquisition cost, without the many dreaded hours of manual data manipulation or Excel magic. Mosaic also allows you to build forward- looking models, which let you see what will happen to your CAC if you increase your advertising spend or hire more sales reps. Now you can adjust your marketing and sales budgets to strategically respond to business needs, without feeling like you’re writing a check in the dark.

9. The Bottom Line Understanding how much it costs to acquire new customers is essential to understanding how smart your marketing and sales spend is. Mosaic integrates with your HR, CRM, and ERP systems to aggregate and normalize your dispersed CAC data. Once connected, you can check in on your customer acquisition costs any time you like, and then make informed, data-driven plans around what you see, ensuring your teams, programs, and budgets are set up for success.