Customer acquisition

Customer acquisition is the process of gaining new customers. This means convincing people to purchase products or services from your brand or store. 

Customer acquisition is an important process for all businesses and that is why there are many customer acquisition strategies and tactics. During this process, people are brought into the marketing funnel, from brand awareness to purchase decisions. 

Why is customer acquisition important?

Customer acquisition is a vital part of a business. Without customers, no business can survive. However, there are different types of customer acquisition tactics, depending on the activity of the business. For example, some businesses acquire customers with lead generation while others focus on marketing tactics like banner advertising, newsletters, and promotions. 

While customer acquisition tactics differ from a business to another, the process is fairly similar. The first step is to correctly identify the type of potential customer you want to target. Afterward, you will need to establish how you are going to contact them. Once you connect with them, people become leads and you can determine the value of each lead.

Your sales team needs to establish a relationship with potential customers to know their needs and wants. Also, developing a relationship with potential customers helps you gather valuable feedback which can help you improve certain business processes. 

What is CAC and how do you calculate it? 

CAC is short for “customer acquisition cost”. It means all of the costs associated with the acquisition of new customers. You need to take into account all of the costs from sales to marketing efforts. 

There are two formulas for calculating the cost of customer acquisition. The first one is simplified and it might not show the real cost: 

CAC = MCC ÷ CA

MCC: Total marketing costs associated with customer acquisition 

CA: Total customers acquired

The formula written below is much more complex and it contains more costs you need to consider when calculating CAC:

CAC = (MCC + W + S + PS + O) ÷ CA

MCC: Total marketing costs associated with customer acquisition 

W: Wages of the marketing and sales employees

S: The cost marketing and sales applications and software

PS: Any other extra professional services (e.g., consultants) used for marketing/sales

O: Overhead

CA: Total customers acquired

What is a good CAC? 

There isn’t an average customer acquisition cost because it differs from industry to industry and it depends on the methods used to acquire customers. However, below, you will find some benchmarks per industry. 

The best way to know if your customer acquisition cost is not too high or too low is to compare it with the customer lifetime value (LTV). The ideal LTV to CAC ratio is 3:1. If you are closer to 1:1 you are spending too much and if you are closer to 5:1 you spend too little on customer acquisition.