Customer Acquisition Cost Definition

Customer acquisition cost, sometimes abbreviated as CAC, is the average amount a business can expect to pay to acquire a new customer. An accurate CAC is generally considered to be all-inclusive, meaning that it accounts for all potential expenses incurred in the acquisition of a new customer, such as advertising, the time spent in pre-sale meetings, incentives or discounts, and so on.

CAC is an important metric for companies to keep track of because it helps significantly with budgeting more or less across the board, such as for advertising, internal expenses, and the day-to-day cost of doing business, as all of these elements likely factor into the acquisition process.

Customer Acquisition Cost Example

Typically, businesses attempt to increase profits by increasing the number of new customers they bring in. Knowing their overall customer acquisition cost will help a business allocate their finances properly and avoid overspending on the acquisition of new customers.

However, to make this example more interesting, it’s important to note that sometimes a method of increasing profit is to reduce the cost of the company’s current methods of recruiting new customers, i.e., to reduce their CAC.

Digital marketing is a great way to do this, since it typically offers businesses more data and flexibility than nearly any other form of advertising. For example, a company might try to reduce their CAC by optimizing their Google Adwords campaigns, improving their website’s search engine optimization (SEO), or focusing on other forms of digital inbound marketing.

Why is Understanding Customer Acquisition Cost Important in Strategic Marketing?

Strategy

A key benefit of strategic marketing is to always maintain reliable, actionable business data, and CAC is a major component of that goal.

Closing Sales

Knowing their CAC gives businesses an edge when closing sales. It’s very much a “know when to hold'em, know when to fold ‘em” scenario—rather than spending too much time and resources on an expensive acquisition, businesses can focus on closing more affordable sales.