What is a Good Customer Acquisition Cost?

What is a Good Customer Acquisition Cost?

CAC, or customer acquisition cost, is a crucial business metric used by companies around the world. CAC allows businesses to allocate resources and attract new customers to continue their growth. customer acquisition costs can vary widely from one industry to another, and even from one company to another within the same industry. However, customer acquisition costs generally fall into advertising, marketing and sales commissions. By understanding customer acquisition costs, companies can make informed decisions about where to allocate their resources in order to attract new customers and continue their growth.

How To Calculate Your CAC

The formula to calculate your customer acquisition cost is very simple. All you need to do is add up all your costs required to get customers, and divide that number by the number of customers acquired. For example, let's say your company spent $200,000 on advertising and $300,000 on sales in a month. Your total cost for the month would be $500,000. Now let’s say you acquired 500 customers, $500,000 divided by 500 customers is $1,000. Therefore, your CAC would be $1,000, which means for every $1,000 you get one customer!

Are customer acquisition costs the only metric you need for your business? Actually, if you only look at the CAC you might think you’re losing a lot of money when you really are not. It’s important to look at other metrics as well, such as the lifetime value (LTV) of your customers. We will discuss how to calculate your LTV, and how it relates to your CAC at the end of this blog post!

Average CAC By Industry

As stated before, customer acquisition costs vary by industry. CAC also differs in different channels, such as paid search, display advertising and social media ads. There are many ways to improve your CAC, which we will discuss in the next section. Below you will see the average CAC by industry which your business should strive for:

Improving your CAC

There are many ways to reduce and improve your customer acquisition cost. Here are a few tactics you can use:

1- A/B Test Your Landing Page

A/B testing your landing page with different headlines, copy and CTAs is a great way to increase your conversion rate. The more customers you convert with the same amount of costs, the lower your customer acquisition cost will be! You can use session recording for free with Moment, which allows you to view what your website visitors are interacting with on your website.

2- Improve Customer Service

The better your customer service, the more likely you are to convert new customers, and retain current customers. This will ultimately increase your conversion and retention rate, which means a lowered customer acquisition cost! You can use a free live chat on your website to quickly respond to website visitors and answer their queries.

3- Provide Social Proof

Your website should have testimonials, ratings and reviews to increase its social proof. This allows potential customers to see what other people have to say about your product or service and ultimately increases your conversion rate. The higher your conversion rate, the less you have to pay to acquire each customer! You can also use Moment’s free email marketing to nurture prospects and send them your case studies and testimonials.

What About LTV?

Now that we know what customer acquisition costs are, we should discuss the lifetime value of your customers as well. LTV is calculated by estimating the period your customer will be using your service or product and multiplying that by the cost per month or product. This calculation will give you the amount a single customer will spend at your business in a lifetime.

Now that you have your LTV, you can calculate the ratio of your LTV to CAC. You can do this by dividing your LTV by your CAC. If the number is greater than 1, you are making a profit from your advertising efforts. If it is less than 1, you are spending more money than you are generating. It’s important to always calculate your LTV alongside your CAC as it gives you a bigger picture of your marketing and sales efforts. Improving your LTV/CAC ratio will ultimately generate your business more profits!

Final Notes

Calculating your customer acquisition cost and lifetime value is extremely important for any business that is spending on marketing. Having a good CAC depends on your industry, but generally, if you have an optimized landing page that converts, you should be getting more customers than your competitors.

Having a free CRM such as a Moment is a great way to optimize your business. Moment comes packed with free features such as: live chat, session recording, email marketing and user journeys! You can signup to Moment and utilize its features to reduce your customer acquisition costs.

If you need any help with optimizing your business or using our CRM, feel free to send us a live chat message on our website!

Happy Chatting! 💬