Customer Acquisition Cost (CAC) Calculator
Marketer's main aim is to acquire new leads, convert them into paid customers, and bring in revenue. But, marketers shouldn’t just track the number of customers they bring in, but also make sure that they are paying the right cost in acquiring new customers.
Customer Acquisition Cost (CAC) is a metric that estimates the cost an organization spends to acquire a new customer.
The lower the CAC, the more effective your lead generation channels are.
What is a Customer Acquisition Cost [CAC]?
CAC is the total cost spent by an organization to acquire new customers.
Even a few years ago, organizations would target every potential customer, irrespective of intent matching. However, with the advent of data analytics, organizations know exactly where their high-intent customers are and create targeted campaigns to ensure lower CAC.
Organizations target a specific segment of potential buyers and invest in various inbound and outbound channels to convert these leads into customers.
Using proper CAC metrics provides organizations with 360-degree visibility of their investments across different customer acquisition channels. As a result, they are well-equipped to make appropriate decisions.
How to calculate the customer acquisition cost?
Here’s how marketers can calculate CAC:
CAC = [ Total amount spent on sales and marketing channels in a certain period / New customers acquired in that period]
For example if an organization spends $1000 on sales and marketing for six months and acquires 2 new customers, the CAC for six months is =
CAC = ($1000/2) = $500
Why does CAC matter for your business?
CAC paints a direct picture of how effective an organization’s sales and marketing channels are in acquiring new customers. Sales and marketing teams always brainstorm new and creative ways to boost customer acquisition. Tracking CAC regularly helps them plan their strategies.
Additionally, businesses should focus on customer retention as this helps improve customer life time value and reduce CAC in the long-run.
5 Tips to reduce your CAC - tried and tested strategies
Here are 5 tried and tested tips to reduce CAC for your business:
1. Identify your target buyer persona and their pain points
If your sales and marketing teams are well-aware of the target buyer persona and their pain points, they can plan their lead generation strategies accordingly. This approach can also help you target the ideal customers whose pain points match your product or services. As a result, the likelihood of converting these leads is higher.
Here’s how you can identify your target buyer persona:
- Perform a quick search across your contact database and pinpoint the prospects who are frequently visiting your website (or other channels) and consuming content.
- Use appropriate form fields in different parts of your website to trigger action and collect contact details of your target audiences.
- Schedule weekly meetings between sales and marketing teams to figure out the quality of leads and brainstorm what new strategies you should develop to generate and convert valuable leads.
- Interview existing customers, list what they like and don’t like about your product, and make changes accordingly.
You can use the following template to create your buyer persona:
2. Build a shorter sales cycle
A longer sales cycle results in more time to convert new leads. This can result directly in higher CAC for your business. Therefore, keeping your sales cycle short is a great way to reduce CAC.
However, the question here is - how? Business-to-Business (B2B) sales cycles are usually longer due to the involvement of multiple stakeholders.
Well, reducing the sales cycle can be difficult but surely not impossible! Here are a few strategies to do that:
- Use marketing automation tools to automate repetitive tasks like creating reports, tracking leads, scheduling meetings, managing projects, etc.
- Be very clear about pricing. Pricing negotiations can be a major reason behind longer sales cycles. Make sure to clear any confusion related to pricing in the initial stages of the sales cycle itself.
- Create a structure for your sales meetings and stick to it. That way, the sales reps and the prospects will have a framework to follow, and there will be lesser possibilities of confusion.
- Leverage social proof as much as possible. Share successful customer stories and case studies with the customers before the sales call. This will help you win their trust easily, and the scope of fast conversion will increase.
- Create personalized proposals, email templates, and call scripts for each prospect. A personalized experience can ease the decision-making process for prospects.
3. Introduce effective customer retention strategies
When a customer churns, sales and marketing teams need to double their efforts in acquiring new customers. This means spending more time and money on resources, subscriptions, and strategies.
Organizations should rather spend time retaining existing customers and identifying new ways to re-engage them. Acquiring a new customer is 7X costlier than retaining a new customer. Existing customers are already aware of your products and services and are easily convinced.
Some simple ways to reduce customer churn and retain customers for the long term are:
- Run an organization-wise audit to understand why customers are churning. Did you know that 68% of customers believe organizations don’t care enough for them? Such an audit can help you understand the challenges faced by customers and address them to retain them for a long time.
- Never stop engaging with customers. Develop a consistent feedback loop across various customer touchpoints to understand what customers are thinking clearly. This will help identify customers who are likely to churn, and accordingly you can take the next steps.
- Finally, start creating long-term contracts. Instead of month-on-month contracts, prepare 3-month or 6-month contracts. That way, you will have sufficient time to understand the customers’ requirements and provide them with top-notch service.
4. Create a website that triggers action
If you have an optimized website with sufficient content and information, it can work as your lead generation engine for free. An optimized website encourages prospects to take action. To ensure optimization, consider including the following factors in your website:
- Accessible from different devices and easily navigable.
- User-friendly and fast-loading.
- Clear sitemap with an easy call-to-action (CTAs).
- Includes a lot of content and lead magnets to support the prospects residing in different stages of user journey.
The Salesken website is a great example of an optimized B2B website. It has clear product pages, solution pages, actionable content, and effective CTAs. Hence, when a prospect visits this website, all their questions are answered through the website itself, so prospects can decide on the next phase.
5. Create high-quality content
Nothing can beat great content. Great content can take time, but once the prospects find you through great content, there is no looking back. Brands that focus on creating well-researched, high-quality content and copy across different channels can grasp prospects’ attention quickly and nurture them to engage with your brand in the long run.
Acquiring customers without burning a hole in your pocket is difficult. That’s exactly why brands should focus on tracking their CAC from time to time. CAC is a major metric for B2B businesses, and a high CAC is not sustainable for the long-term health of your business.
The strategies mentioned here can help you get started with reducing the value of CAC and ensure that your customer acquisition and retention are balanced simultaneously.
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