How to calculate your company's CAC?

The cost per customer acquisition (CAC) is a metric that every successful business or on the road to success measures and tries to continually decrease . At Dinterweb we help our clients calculate their CAC so that every marketing effort contributes to reduce it .

Just as many companies say they do Inbound marketing, not all of them really do Inbound marketing; many believe they are calculating their CAC when in reality they are doing something very different and as in everything else, here mathematics is fundamental so that "the bridge does not fall down".

In other words, if CAC is wrongly measured, business objectives and the campaigns focused on achieving them could be misaligned with reality: any strategist's nightmare!

So that this does not happen to you within your company, in this article we will explain how to calculate your CAC.

Cost per Customer Acquisition

Customer Acquisition Cost refers to the total cost that the marketing and sales department needs to attract a new customer to the company during an estimated period of time .

Some companies make a digital marketing plan and add the calculation of the CAC to know their profitability, since it helps them to have an exact data about the amount of customers that can be obtained taking into account a certain amount of resources .

As we mentioned before, it is normal for companies to make efforts to reduce their CAC and thus, recover part of their income .

Steps to calculate the CAC

1. Define how much time elapses from the first conversion to the sale.

This will allow you to correctly attribute the results. What do we mean? There are cases in which there is a period, from the time the contact enters our database or CRM, until it becomes a customer.

What does this tell us? Assuming that the period it takes for that contact to become a customer is 3 months; if in January he enters the CRM, you can measure the results in April.

Details like this may complicate the formula you will use to measure the CAC a little more, but you should keep them in mind to get real results.

On the other hand, if you were talking about a business that manages a slightly shorter period, let's say: 2 months since one of the contacts entered the CRM until it becomes a customer; the results of the marketing investment made in January should be measured until March.

2. Define which expenses include marketing and sales

Consider the following expenses and make them part of the equation:

Salaries: take into account the salaries of all the people who are in charge of the marketing and sales area within your company; not only of the collaborators who are 100% dedicated to these departments, but also of the people who dedicate part of their time to these activities. For example, the managers themselves.

Overhead Expenses: can include rent, equipment, and other resource-related expenses used by employees working in sales and marketing within your company.

Tool expenses: add up the costs of the marketing and sales tools that employees in those areas are using.

Investments in agencies and campaigns: finally, what most do usually calculate: we must add the investment made in agencies and marketing campaigns.

Important: distinguish between new and repeat customers

Many companies invest in attracting new customers, as well as in retaining or reselling existing customers. Therefore, it is important to differentiate these efforts to correctly calculate the CAC. So:

Include all marketing/sales expenses (including those focused on retention) and all customers.

Separate expenses for new customers from reactivating old customers and separate new customers from reactivated customers in the denominator.

3. Using the CAC calculator template

After you have all the data we mentioned to you at hand, you can proceed to place them inside the CAC template. In the template you will find 5 sheets, the first three refer to the ready-made calculator for when the average sales times since the first interaction with the contact is 1 month, 2 months, or 3 months.

If the average time is longer than 3 months, the formulas would have to be readjusted.

Also, the template has 2 additional sheets to help you calculate your marketing and sales expenses. At the time you are filling out the 2 sheets, the details shown are examples only, but you should rely on the "expense descriptions" to include all relevant expenses in your equation.

As you can see, calculating the CAC is an important part of knowing the profitability of your company, although it is not the only calculation that can help you to obtain accurate metrics, you can also perform the Life-time value calculation that will be helpful for your company .