What Is Customer Acquisition Cost (CAC)?
While customer acquisition is the process of converting a potential buyer into an actual customer, customer acquisition cost (CAC) means the expenses that businesses incur in deploying customer acquisition strategies and the process.
CAC is also a key business metric, as it allows companies to understand the costs associated with acquiring customers.
Why Is It Important To Track Customer Acquisition Cost (CAC) For D2C Brands?
For D2C brands, taking note of customer acquisition costs is crucial as it gives clarity on all expenses related to acquiring new customers.
Further, brands can determine the effectiveness of their marketing strategies. This helps in understanding how much money is required to acquire new customers and decide if it is a worthwhile investment in the long run.
The formula to calculate Customer Acquisition Cost (CAC):
CAC: Cost Of Sales + Cost Of Marketing/New Customers Acquired
What Expenses Should Be Included In The Customer Acquisition Cost (CAC) Calculation?
While calculating customer acquisition cost, following should be taken into consideration:
- Money spent on advertising campaigns, including ad placement and agency fees
- Salaries of sales and marketing professionals, including hiring costs
- Expenses incurred for in-house creative teams, third-party agencies or freelancers for design, content creation, copywriting and editing
- Expenses incurred in purchasing and maintaining marketing and sales solutions like CRMs and other email marketing tools
- Costs related to product innovation and improvement
What Is The Difference Between Customer Acquisition Cost (CAC) And Customer Lifetime Value (CLV)?
Briefly put, CAC provides information on a brand’s expenditure on acquiring customers, while CLV shows the revenue each customer can bring to the business. Some key differences are:
Note: It is pivotal for brands to have a low CAC versus a high CLTV for profitability and sustainable business growth.
What Are Some Strategies To Lower Customer Acquisition Cost (CAC) For D2C Brands?
- D2C Brands must focus on improving customer experience with their existing customers, as they will likely share their experience with potential new customers.
- Leverage social media to proactively engage with its customers who could fit its target customer profile. This can help in higher conversion rates and lower customer acquisition costs.
- Use email newsletters, podcasts and YouTube videos to advertise products and services to discover new customers.
- Invest in creating content optimised for search engines to attract organic traffic like SEO and SMO. This is effective for businesses that solve specific problems.
- Retarget people who have previously interacted with your website or content through Google and YouTube ads, as they are more likely to convert. Retargeted ads are cheaper than advertising to entirely new audiences.
- Start an affiliate programme to incentivise influencers, bloggers, media websites and existing customers to promote products or services.
- Create a community by bringing people together. This helps in building trust and loyalty.
- Begin sending out email newsletters to provide valuable insights into the change you are introducing to people’s lives.