Understanding what CAC is and reducing the so-called Customer Acquisition Cost is a goal that your company needs to pursue at all times.
After all, you agree that the ideal scenario for any company is to sell more and spend less, correct?
The fact is that reducing the cost of acquiring customers is essential for your business to grow and for your company to develop sustainably. That’s why it’s so important that your team is aware of this factor (is it?).
If not, this article is perfect for you.
In it, we’ll talk about what CAC is, how to calculate and optimize it, and how a sales CRM is a valuable ally in the mission to reduce it within your company.
Let’s go.
Good reading!
After all, what is CAC?
This is the cost your company has to attract new customers. It is the average of investments made directly in the task of attracting these buyers. In this regard, one especially takes into account how much is spent on the marketing and sales team – which are usually the sectors that manage to prospect leads to be converted into new sales. But, of course, this varies from company to company.
You, understand what CAC is, but you need to take into account many aspects, such as
- Salary and commission of your sales, marketing, and/or other team;
- Monthly cost of software such as CRM and Marketing Automation;
- Spending on online or offline media to attract leads;
- Between others;
You, knowing the reality of your company well, know better than anyone what costs go into this account, right?
What is the purpose of the CAC?
The main objective of CAC is to guide marketing decision-making, as it offers a realistic view of the effectiveness of acquisition strategies.
Monitoring the CAC is essential to control campaign budgets and make the necessary adjustments to impact potential customers.
Imagine your company’s marketing team decided to invest in a two-month seasonal campaign to drive new customer acquisition.
After analyzing the results of the first week of the campaign, an above-average CAC was noted.
Despite the campaign having reached a large number of people, it was spending a lot to bring in very few customers.
To resolve this situation, the team decided to temporarily pause the campaign to make the necessary adjustments to the offer, channel, audience targeting, and creative.
Now imagine how much money would be spent, without return, if marketing did not follow this metric.
Undoubtedly, CAC is one of the most important metrics for any customer acquisition strategy, regardless of the amount to be invested.
How important is CAC for sales?
As you just discovered, CAC is an essential metric to guide a company’s marketing strategies, but it also has a direct impact on the commercial team.
Investments made in sales count towards the calculation of the CAC, after all, it is not enough just to generate leads for the business, Salespeople must work on these opportunities over the period.
Again, investments related to salaries, commissions, systems, travel, telephony, and active prospecting actions must be considered to know, in fact, “how much” each client costs.
Knowing the CAC helps direct the sales team’s efforts and coordinate industry growth when needed.
This metric is also very useful for identifying investments that are not bringing results and, of course, cutting unnecessary costs.
How to calculate CAC?
To calculate the customer acquisition cost, it is necessary to know how many customers enter your base per month – consider not only those who have already purchased your product or service but also the newly generated leads.
Taking into account the expenses mentioned above, we can make a reasonably simple calculation.
Add up all expenses and divide by the number of new customers obtained in a given period (it could be a month or two months, for example).
To talk numbers, let’s say you got 500 new customers within two months. Your spending in these 60 days was $1,230.00.
So it’s easy: Divide 1,230 by 500 and you’ll know your company’s CAC.
What to consider when making this calculation?
Many believe that, to calculate the CAC, it is enough to add only the investments made in marketing campaigns, such as paid media, advertising campaigns, etc.
In reality, you need to consider other variables, such as:
Investments in marketing and sales
To calculate CAC, you must take into account all of the marketing and sales investments you’ve made over some time, including:
- Salaries of both teams ;
- Commissions ;
- Telephony ;
- Tools used to facilitate the work ;
- Paid Media Campaigns ;
- Events, public relations, content production, sponsorships, and other actions ;
- Transport and travel ;
- And much more.
Customers who came from the CAC strategy
Finally, and not least, you should analyze the number of customers won with all acquisition strategies.
Remember that customers who came from referrals or from other channels that did not receive investment should not be considered for the calculation.
When to calculate CAC?
The Customer Acquisition Cost (CAC) must be calculated continuously, after all, it allows you to monitor the effectiveness of strategies and the financial health of the business.
This means that as long as you invest in marketing and sales, you will need to keep track of CAC.
Some companies calculate the CAC at the end of each month, however, depending on the size of your investments and your operation, you may need to analyze it more frequently.
When launching a new campaign, for example, it is interesting to monitor the CAC every week.
As we’ve already mentioned, this metric can help the team apply improvements to campaigns and even change the route, if necessary.
How does CAC relate to LTV?
Lifetime Value, or just LTV, can be translated as the customer’s lifecycle value. In other words, the income he will be able to your company during his contract or relationship time.
This metric is mainly monitored by companies that work with recurring revenue – a model based on the sale of subscriptions and monthly fees.
The relationship between CAC and LTV is very simple, however, essential to control costs and direct investments.
The CAC tells you how much you spent to acquire the customer, while the LTV gives you a vision of how much revenue this customer will bring along their journey.
In this case, it is interesting to have a low CAC, but a high LTV.
What to do if the CAC is lower than the average ticket, LTV, or market average?
If your CAC is lower than your average ticket, LTV, or the market average, rest assured, as this means that your investments are being assertive.
As we said in this content, the lower your CAC, the better! A low CAC means you are spending “little” to acquire new customers.
However, even with this positive balance, it is necessary to pay attention to the balance of investments.
A very low CAC can also be a warning sign to take better advantage of opportunities.
In this scenario, we recommend analyzing whether it is possible to increase your investments to boost the company’s growth.
Often, some budget additions can be made, without this hurting the financial health of the business.
What if the CAC is higher than the average ticket, LTV, or market average?
Now, if your CAC is higher than the average ticket, LTV, or market average, we recommend doing a thorough analysis of your strategies.
You should look at both your budget and other aspects that encompass CAC, such as marketing actions, sales, and even internal costs.
Another practice that can help you recalculate the route is to talk to other companies and benchmark with your main competitors.
In this way, it is possible to find out which practices are contributing to the efficiency of these companies that are part of their market.
How to improve your CAC?
Selling more and better and reducing costs is what you are chasing for your company right now.
That’s why you understand that reducing the cost of acquiring customers is important.
However, for this to happen, adjustments are needed, improvements in day-to-day business practices.
That’s why we separate below 5 tips for those who want to remain competitive in the segment in which they operate.
1 . Inbound Marketing: Invest in quality content
Betting on content marketing is essential for companies in several ways.
Anyone who invests in quality content – whether on a blog or website – that delivers answers and/or solutions to the pain points of potential customers becomes a reference in the area in which it operates.
Building credibility is fundamental for the potential customer to end up trusting your brand and, finally, purchasing your product or service.
From there, with the correct use of SEO, with well-optimized content, you increase the organic reach of your content, as a result of your brand, and thus attract traffic to your website.
The result? Leads. The cost of it? Zero.
For this mission, however, it is necessary to know who you are writing for, and if the content created is meeting the pain points of your target audience.
By the way, in addition to mastering the meaning of what CAC is, do you know your client?
2 . Know your customer well
It may seem obvious and you will say “yes, of course I know my client”, but reality is not always what it seems.
To optimize your CAC you need to have “on the tip of your tongue” who your client is, what he needs, and why he is looking for a certain good or service, for example.
In this way, it is possible to understand their behavior during the buyer’s journey and distribute relevant content for each stage of the sales funnel.
Knowing well who your audience is and where they are, you can channel your investment in online media, directing it to the right social network with the right segmentation.
3 . Customer loyalty is important
One of the main strategies for companies to reduce CAC is to build customer loyalty.
Strong client management, in addition to keeping them within its business, guarantees indications for future opportunities.
This, of course, will benefit your average ticket and consequently, your LTV which, as we mentioned above, is directly linked to your company’s customer acquisition cost.
4 . Good strategies: plan and measure results
When we talk about sales, any detail can be decisive for the lead to become a customer.
That’s why it’s vital to plan before executing and measure the results obtained to know what can and what can’t be done anymore.
Test. Text, layout, approach, sales technique, everything possible.
Document, and record what went well. By knowing what works, you know your customers better, act assertively and, of course, reduce costs.
5 . Use a sales CRM that helps you
Does your sales CRM help you reduce CAC? If not, you better rethink it. A good CRM provides vital data for this mission.
It gives you information about your current customer base so you can segment, for example.
It is also possible to customize marketing actions for an audience that will be interested in what you are selling.
In addition to periodic reports to monitor the indicators of your teams, it is essential to have both the historical record of negotiations.
With these actions, you save your sales team’s time so they can focus on what matters: selling more.
Improve your CAC!
As you already know, one of the best ways to improve your CAC is to invest in a smart CRM for your business.
You can optimize the day-to-day activities of your marketing team, which can count on complete reports on the company’s main success indicators, and segment bases, and customize actions to be more and more assertive in strategies.
The sales team also benefits from this tool, after all, it is capable of automating manual tasks so that your salespeople direct their efforts towards converting the greatest number of customers.
Conclusion
Without a doubt, CAC is one of the main metrics to monitor in a company.
Knowing how much you are spending to acquire new customers is crucial for making adjustments to strategies, making better decisions, and cutting costs whenever necessary.
If you don’t already know what your CAC is, we recommend calculating it today.
Remember that it is important to redo this calculation from time to time to follow the evolution of your results.
Would you like to know how CAC impacts your business? Take advantage of the opportunity and learn about 7 sales metrics to keep an eye on.
We hope to see you in the next content! To the next!
