In order for your business to grow, you need to focus on customer acquisition. It’s not enough to just spend your budget on prospecting new people. Those people actually need to convert.

However, if you’re already doing this but not hitting your target ROI, it might be time to re-evaluate your customer acquisition cost (CAC). If you know how much it costs to acquire a new customer, every other aspect of your marketing budget will fall into place.

The first step is calculating and tracking your CAC, from there you can determine areas for improvement and start seeing results.

Don’t worry, we’ve got you covered with a comprehensive guide to understanding this key metric and how it affects your marketing strategy.

How To Calculate CAC

Customer acquisition cost is the amount spent on marketing efforts that result in a new customer. Overall, it’s pretty simple to calculate. Just take your total marketing costs divided by the number of new customers.

However, the exact amounts used in this calculation will differ between businesses. You’ll need to start by determining what your total marketing costs include.

Total Marketing Costs

If your business is strictly e-commerce, this calculation can include ad spend, marketing management, ad production, and anything else that goes into getting the user through your funnel.

However, your company might have a more complex acquisition process that includes a sales team along with a marketing team. If this is the case, both need to be added to your CAC calculation.

Choose a Time Frame

Once you’ve determined what will go into your calculation, you need to pick a time frame. Many companies choose to look at CAC over a month-long window. This gives enough room for fluctuation day over day, which is perfectly normal.

This will also help you identify any large discrepancies in your marketing strategy and leave room to make changes that are data-backed and scalable.

Use High-Quality Data

Speaking of data, analyzing your CAC can get difficult if your data is convoluted. If you only market on one channel, it should be pretty straightforward. However, if your marketing efforts are robust, your analytics should reflect that.

While CAC is the most important metric for your business, it can be extremely helpful to have a more holistic view by effectively tracking all parts of the funnel. Additionally, if you market on multiple channels, consider using software designed to integrate all of your analytics so you can have a reliable overview of the most important metrics.

Factor in CLV

An important metric to look at in conjunction with CAC is CLV or customer lifetime value. Chances are, many of your new customers will turn into repeat purchasers. CAC calculates how much it costs to acquire a new customer while CLV calculates how much profit that customer will bring you over the course of a lifetime.

This can help you strategize retention to turn your hard-earned customers into repeat purchasers and lower your CAC overall.

Determine Areas for Improvement

Now that you’ve gathered the data, it’s time to analyze it and look for areas of improvement. If your CAC is higher than you would like, there are a few things you can do to more effectively optimize your marketing strategy.

Utilize Retargeting

If you’re having trouble getting visitors to convert, try targeting directly to people who have viewed or interacted with your site. This will give them the extra push they need to complete the purchase.

Often retargeting campaigns require unique messaging for people who have already shown interest. They don’t need a pitch that introduces them to your brand as a new prospect would. Instead, tailor your ads to retargeted audiences by creating a sense of urgency to purchase, or simply reminding them of something they viewed on your site.

Find the Most Effective Channels

If your CAC isn’t meeting industry standards, try analyzing a breakdown of your marketing metrics by platform. You may find out that your ads are performing much better on Facebook than on Google search.

This will mean dedicating more of your budget to the channels that increase ROI overall. According to industry statistics, Facebook is an ideal channel for reach and return on investment. In fact, 78% of Americans are actively looking for new products or services on Facebook.

So, keep up-to-date with Facebook marketing best practices and you can greatly improve metrics like CAC by utilizing this platform.

Ensure Proper Tracking

Anytime you spot a discrepancy in your metrics or find that something has drastically fallen out of line with your goals, it’s time to check your tracking. Often these problems arise because something is not firing correctly.

Run through your pixels at least once a month to ensure that every event is firing correctly, otherwise, your data will be unreliable.

Keep Testing

This may seem counterintuitive if you aren’t hitting your CAC goal. However, investing more in testing can help you identify the ideal message and ad format for your audience.

A/B testing can give you insights into which ad version or landing page is driving the most conversions. From there, you can optimize every aspect of your marketing strategy with conversions in mind. This will inevitably decrease CAC as you can weed out the tests that aren’t focused on improving key metrics.

Budget To Increase ROI

Now that you have a strategy in mind, it’s time to create a budget that is sure to hit your goals. The greatest advantage of determining your ideal CAC is that it can help you plan for the future and scale your marketing efforts.

When you know your CAC, and optimize with cost metrics in mind, you’ll be able to increase ROI with ease.

Get Started Today

With this comprehensive overview of customer acquisition cost and how it affects your marketing goals, you have a framework to get you started growing your business. For more articles on marketing best practices, visit our blog and contact us today for all your marketing and analytics needs.