How is the customer acquisition cost calculated?

The calculation of customer acquisition cost (CAC) involves determining the total expenses incurred to acquire new customers and relates these costs to the number of customers obtained. This is represented by adding together the marketing expenses and the sales expenses associated with acquiring new customers, then dividing that total by the number of new customers gained during a specific period.

This method is crucial for businesses to understand the effectiveness of their sales and marketing strategies as well as to assess profitability and financial health. It allows businesses to estimate how much they are spending to gain each new customer, which can inform budget allocation, pricing strategies, and overall business strategy.

The other options do not reflect the correct methodology for calculating CAC. While total expenses divided by revenue provides insights into overall efficiency, it does not specifically address the cost associated with gaining new customers. Sales profit divided by customer retention looks at profit rather than acquisition costs. Lastly, marketing expenses minus customer churn does not accurately reflect the costs involved in gaining new customers; instead, it focuses on costs not retained, which is not applicable to CAC.