Customer Acquisition Cost (CAC)

Definition

Customer Acquisition Cost (CAC) is a crucial business metric used to estimate the amount that a business spends to acquire new customers.

Example

CAC is calculated by adding up all the costs linked to the conversion of prospects into customers (for example, marketing and sales staff) and dividing the total amount by the total number of customers acquired. Example: Vareto incurs a total of $300k in marketing and gets 300 new clients in a year. CAC will therefore be = 300k/300 = 1k per customer. The lower the CAC the better for the business since it means that the company is incurring a lower cost for every new customer being added.

Why it matters

This metric helps in measuring a company's return on investment while growing its clientele. CAC is a reflection of how successful a company's marketing and sales strategies are.

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