A business calculates CAC by dividing total marketing and sales expenses by the number of new customers acquired. What does this metric help determine?

This metric, Customer Acquisition Cost (CAC), provides valuable insights into customer acquisition efficiency. By calculating CAC, businesses can evaluate how effectively they are spending their marketing and sales resources to gain new customers. A lower CAC indicates that a company is acquiring customers more efficiently, meaning it is spending less money to gain each new customer, which can positively impact profitability.

Analyzing CAC allows businesses to refine their marketing strategies, optimize expenditures, and improve target audience identification. Additionally, tracking CAC over time can help businesses understand changes in customer acquisition strategies and the overall effectiveness of different marketing channels.

While customer satisfaction, profit margins, and market share are important aspects of a business’s performance, they do not directly relate to the efficiency of the customer acquisition process, which is precisely what the CAC metric is designed to measure.