Customer Acquisition Cost (CAC): What Is It & How to Calculate

by The MNTN Team

4 Min Read

If you find that you’re spending too much money to acquire customers, taking the time to calculate and understand your customer acquisition cost (CAC) will help you maintain a profitable operation and ensure you are efficiently earning new clients.

Here’s everything you need to know about one of the most crucial marketing metrics.

What Is Customer Acquisition Cost (CAC)?

Customer acquisition cost refers to the amount you spend to earn new business. It includes all marketing and sales expenses, such as advertising, salaries for your marketing and sales teams, and any other costs associated with bringing in new customers.

Importance of Customer Acquisition Cost

Your CAC matters because it directly impacts your profitability and growth. If you’re spending more to acquire customers than you’re earning from them, your business model may not be sustainable in the long run.

Tracking your CAC also allows you to ensure your marketing efforts are providing a good return on investment (ROI). The less you spend earning new business, the more cash you’ll have to improve products and retain existing customers.

How To Calculate Customer Acquisition Cost

The most difficult part about calculating your company’s CAC involves identifying all of the costs associated with new customer acquisitions. After you’ve done that, the process boils down to a simple formula.

CAC Formula

CAC = Total Sales and Marketing Expenses / Number of New Customers Acquired

An Example of How It’s Used

Let’s say your business spent $100,000 on sales and marketing last quarter and acquired 500 new customers during that time. Using the CAC formula, your customer acquisition cost would be calculated like this:

$100,000 / 500 = $200

This means you would be spending $200 to acquire one customer, on average.

What Is a Good Customer Acquisition Cost?

A “good” CAC varies depending on your industry and business model. Ideally, your CAC should be low enough that your business remains profitable. However, a more useful benchmark is comparing CAC to your customer lifetime value (CLV), which represents the total revenue you can expect from a customer during their time with your company.

Let’s build on the example above, where your CAC was $200. If your CLV were $2,000, you’d be in great shape. A CAC that’s significantly lower than your CLV is a good indicator of sustainable growth. However, if your CLV is only $300, your margins are very thin.

Strategies To Improve Customer Acquisition Cost

There aren’t any one-size-fits-all solutions to reduce your CAC. You’ll need to use a few complementary strategies, such as the following:

Optimize Your Marketing Spend: Focus on performance marketing channels that bring in the highest quality leads at the lowest cost.
Enhance Your Conversion Rates: Learn how to convert more leads into customers without increasing spending.
Improve Retention: Keep customers happy, so they’ll stick around.
Use Data-Driven Tools: Use CTV platforms like MNTN Performance TV to target specific audiences with precision, improving your reach while minimizing waste

MNTN Performance TV is a multifaceted tool that can help you apply several of these tips. Our platform provides detailed insights into engagement and reach, allowing you to optimize your CTV ad campaigns and make the most of every marketing dollar.

Customer Acquisition Cost (CAC): Final Thoughts

Knowing customer acquisition cost is crucial to staying profitable and fostering growth. It will provide you with a clear picture of how cost-effective your efforts are in bringing in new business and where to improve. With the right strategies and tools, you can lower your costs and attract customers more efficiently.

Learn more about CTV advertising and OTT advertising to see how MNTN can help you achieve your business goals.