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CAC : Why is it important ?

December 15, 2022

CAC : Customer Acquisition Cost, an important indicator for your business!

 

Importance to know the customer acquisition cost (CAC)

 

In consulting, finance, and other service industries, customers represent a revenue stream, and must be acquired and retained over time. Investing in a customer cost acquisition (CAC) strategy is critical for you to attract the right leads to your company and increase your chances of retaining them for the long term.

CAC definition:

Customer Acquisition Cost (CAC) measures the amount a business spends to acquire a new customer. It represents the total cost of sales and marketing activities, assets, or equipment necessary to persuade customers to purchase a product or service.

How to calculate your costumer acquisition cost ?

To calculate your customer acquisition cost (CAC), you need to divide your total sales and marketing expenses over a period, including salaries and other labor costs, by the number of customers acquired during that period.

CAC/LTV ratio:

Combine CAC with Customer Lifetime Value (CLTV) (an estimate of the revenue an account will generate over its lifetime if it continues to purchase or subscribe over a period of time) or Monthly Recurring Revenue (a measure of revenue generation per month). Analyze. Find out if your company is operating efficiently. Investors use her CLTV / CAC to determine whether short-term investments in the company’s sales and marketing are creating or destroying the company’s value, and how additional capital will help the company expand efficiently determine whether

How to reduce your CAC?

High CAC costs mean you spend a lot of money to acquire new customers. To lower this, you need to optimize your login and landing pages. Optimizely is a great tool for testing different variables on your web pages.

Here are his three customer-centric tips that will help you reduce customer acquisition costs and maximize profits.

  • Know your customer. If you know what your customers want and need, you can develop products that delight them.
  • Get your customers involved early. Early product engagement reduces acquisition costs per customer.
  • Try to come back. Acquiring new users is much more expensive than retaining existing users, thus creating a positive customer experience.

Having a lower CAC than your competitors is a good thing. The less it costs to bring customers home, the better.

But like many things in life, you get what you pay for. So, to reduce these costs, don’t sacrifice the quality of your marketing, sales, and onboarding processes will be.

Therefore, the goal of improving the company’s cost structure and scalability is irrelevant. That means reducing non-essential CAC spending but stopping it before it impacts the essential capabilities needed for growth.

Why is it important for the startup to know their CAC?

CAC is one of the important metrics that a startup can use.  It gives you a very quick insight into where you are in the business and where you need to focus.

this will make it easier for you to identify problems and find solutions to improve the situation to know who your buyers are and where you can find them, analyzing CAC will also allow the startups to know even better their return over investment and with this indicator the company will have a much clearer picture of the health of our business

Customer acquisition cost by industries:

 

Customer acquisition cost varies across industries due to several different factors — including, but not limited, to: Length of sales cycle, Purchase value, Purchase frequency, Customer lifespan, and Company maturity.

While the value of CAC is less important when it comes to the travel, retail and consumer goods sectors, we find that in other sectors such as technology (software) the value of CAC is very high. Unlike the travel industry, companies do not have to spend a lot of money to acquire new customers, so CAC may not be a good metric to assess the profitability of companies in these industries.

Conclusion:

So now you know how to think about CAC, but you may not build an efficient go to market machine, this is the one of the biggest things that Ideasvoice focus on, we spend day and night to provide you, the young companies, with the tools and resources essential to your development