WHAT IS CAC?
As we swim through the sea of acronyms, another one we might run into is CAC. CAC
stands for “Customer Acquisition Cost.” It’s an important metric that can help tell you the
value of your marketing.
HOW IS CAC FIGURED?
At its most basic, CAC is the number you get when you divide your marketing costs by
the number of customers acquired, for a specific timeframe.
Let’s say you run an ad campaign for a month, it cost X dollars and brought in Y new
customers: CAC = X/Y. As with all costs, the lower that number, the better! Keep in mind
that your X – the price you’re paying for the marketing – is not always the cost of the bill
to Google or Facebook alone. You’re certainly paying for clicks and impressions, but
perhaps you’re also paying someone to write the ad, or paying for specific software or
training for analytics, etc. All of that is included in “marketing costs” for our purposes
MORE PRECISE CAC
You can gain more insights by figuring CAC on a weekly basis, or quarterly, or even for
a specific platform. Are sponsored ads on Instagram doing better than your Google
AdWords campaign? The costs might be similar but be very different when it comes to
numbers of acquired customers. Or perhaps they’re bringing in similar numbers of
customers, but the price you’re paying makes one far more efficient than the other.
You can break it down further by ad. Compare ads to each other in the same way: Is
there one that is a better deal? On the surface one might look great because it’s
bringing in more customers. But if you’re paying far more per click for it compared to
another one that is far less expensive (but still bringing in a fair number of customers), it
might not be a good value at all.
Knowing what it costs to bring in customers is a valuable business metric that can help
you understand the value of different ads or campaigns. Knowing what’s working will
make it easier to spend your marketing dollars where they’re doing the most for your