To see the snazzy, cool infographic I created to illustrate key points visit ImgUR, IMGPile, in case it doesn’t load below.

If we use the infographic image as an example we can measure our Customer Acquisition Cost for a marketing project by taking the amount of money we’re investing into a marketing project (such as a website rebuild incorporating SEO, eCommerce, branding, and marketing plan development as a single package offering) which we can call MC (short for Marketing Costs) and divide that number by the number of new customers that effort has brought in. Let’s call that number NC, short for New Customers.

So we’ll take our MC and divide that by our NC. The total of the MC divided over the NC shows us our CAC. So let’s take a typical digital marketing client as an example (especially since we’re experts in digital marketing as opposed to some other service such as accounting).

If we have Client A and Client A invests $10,000 on a robust website build with all the needed infrastructure to generate results within a thirty day period of time, and subsequently is able to attract ten new clients they would not otherwise have interacted with without this marketing effort, and each client is worth at least $10,000 to that business in revenue, that would mean the company netted a Return On Investment of roughly $100,000 thereby making back ten times their initial investment. Now obviously, this is an example for the sake of illustrating the concept of CAC, but it demonstrates how spending money in order to make more money back can be seen and measured and…. how Customer Acquisition Costs can be estimated or deduced accurately.

If we look at the typical small business owner journey where they will (more often than not) use a “free” DIY template builder for their online presence, so nothing is spent other than hours/weeks/months/years of time spent trying to learn how to finagle a generic template, that business owner isn’t likely to be tracking their time, won’t know their conversion rates (it’s not even applicable with the hobbyist approach), so any kind of known CAC isn’t even relevant to growing a business. Time is spent in unknown quantities, number of potential customers lost is unknown, and value is off the table as a consideration as a result of the approach.

If we look at the less common business owner (statistically a enterprise business with more at stake and more foundational revenue to invest as well) who is able and willing to invest for proactive digital marketing, let’s say in this case Client A invests $3,000, attracts and is able to convert (work with) just three customers in one month Client A has made that net amount back from their initial invest. The local optician to whom one new customer can be worth $500 to $1,000 (and we’re not even broaching lifetime value here) who invests $3,000 for a professional online presence and attracts only three customers in thirty days can say made back their investment in that one month. For every month going forward that profit increases exponentially so it would be fair for them to determine that it was a sound investment.

If we don’t have anything to measure, don’t care, can’t measure CAC, then we won’t know if our efforts have helped the business turn a corner or to what extent.

Why CAC Matters

In justifying the conept of ROI first before we can then move on to having a relevant CAC to consider, it all comes down to whether or not at some point we have a profit-oriented revenue-focused business in need of growth and expansion into new markets.

Knowing your business CAC not only shows us how investing results in direct ROI, it also gives us a Key Performance Indicator (KPI) we can use to measure the success of a marketing effort such as investing in Facebook ads in order to attract more clients for a struggling law practice or more customers for a mechanic / body shop.

Knowing your CAC informs decisions across the board for a business, from knowing whether or not a planned approach (strategy) is bearing fruit as opposed to failing, if it requires some adjustments in order to be more fruitful, if we’re just breaking even, or if the effort being promulgated is well worth our time and investment.

When most businesses struggle for years before finally fizzling out in bankruptcy, knowing your CAC can provide a path forward toward growth that’s safe in that no effort is taken without knowing if it’s working or not.

Closing Thoughts

Customer Acquisition is a natural and necessary component of business growth, one that is most commonly ignored by new businesses and nonprofits alike until it’s too late to pivot and engage in ROI marketing, especially during tumultuous times (such as raging pandemics or political turmoil).

Knowing how to calculate your CAC can make it easier to engage in new marketing projects and less intimidating, while ensuring some measure of certainty in developing ongoing programs such as PPC or ad campaigns.