What is customer acquisition cost?
Customer acquisition cost (CAC) is defined as the cost associated in convincing a customer to buy your service.
The formula for this is:
CAC = Total Sales & Marketing expenses / # of New Customers
As a mover it is important to measure this on an ongoing basis. Marketing costs can fluctuate along with demand and being able to see what your Customer Acquisition Cost is monthly, quarterly and yearly enables you to make informed decisions on marketing spend.
CAC can be broken down into sales and marketing costs:
Marketing: costs for getting leads.
Sales: costs of quoting, estimating and closing clients.
Time spent with potential customers is considered sales costs.
Grab a piece of paper or excel and try this exercise out.
1) Take your spend on lead generation last month:
Google Ads: $200
Angie’s List: $0
Total Marketing Costs = $1,000
2) Calculate your total sales costs – 160 hrs/mth = $3,500
3) Add Marketing & Sales Costs: $1,000 + $3,500 = $4,500
4) Take the total number of customers you had in that month = 45 jobs
5) Divide $4,500/ 45 = $100.
Your Customer Acquisition Cost is $100.
CAC can be evaluated in more detail by looking at a specific marketing channel (i.e Yelp) and dividing the number of jobs from that channel by marketing costs.
Is $100 good or bad? The answer is… it depends. CAC varies by industry, size of company and a variety of factors. Keep in mind as movers you have to constantly acquire new customers so CAC can be higher than other industries.
A helpful way to look at customer acquisition cost is to compare it to a metric called customer lifetime value (CLV). A business equation for sustainability in the long run is CLV > CAC.
Stay tuned for next week’s post where we look at customer lifetime value….