What is the formula for calculating Customer Acquisition Cost (CAC)?

The formula for calculating Customer Acquisition Cost (CAC) involves determining the total costs associated with acquiring new customers and dividing that figure by the number of new customers acquired. This approach allows a business to assess the total marketing and sales expenses incurred to gain each new customer, which is crucial for understanding the efficiency of customer acquisition strategies.

When using the formula of marketing expense plus sales expense divided by the number of new customers, you capture all relevant costs. Marketing expenses can include campaigns, promotions, advertisements, and any other related expenditures. Sales expenses could involve salaries, commissions, and any additional expenditures related to the sales team. By combining these two cost components, you get a comprehensive view of the investment made to attract new customers.

This calculation is essential for businesses as it informs their financial planning, budgeting, and pricing strategy, helping them realize how much they should spend on attracting new customers while maintaining profitability.