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What the CAC? (Yes. This post is safe for work.)

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Your business, no matter the service you offer or the products you sell, needs a solid plan to reliably, consistently, and cost-effectively bring in new clients, customers, and revenue in order to achieve success. If that bored you because it’s painfully obvious… keep reading anyway. There’s useful stuff in here.

On the other hand, if that statement surprised you at all, then definitely keep reading. This will change your entire outlook on your business.

The trick to putting a solid plan into place is to break your sales and marketing process out into actionable steps, with each propelling you closer to your goal – whether that’s growth, revenue, or ideally both.  

people-woman-coffee-meetingMore often than not, however, each necessary action you’ll need to take will cost you money, despite what all the growth hacking gurus might say to the contrary.  We’re talking copywriting, graphic design, developers, technical marketers (all marketing today is at least somewhat technical), and of course direct ad spend.

In order to make sure you’re on track, you’ll need to employ strategies, tactics, and processes that will enable you to gauge your progress and find out exactly where your spend is going (right down to which ad is being served where) so that you know what’s working vs. what’s not.

Unless you’re really talented at doing this yourself or are working with a competent agency, figuring that out can be overwhelming and challenging to get a handle on.

Thankfully there’s one easy metric you can use to quickly cut through all the twists and turns of any marketing madness you’ll need to traverse in order to keep such close oversight of your campaigns.

It’s called your ‘Customer Acquisition Cost’. And every business has one.

What is Customer Acquisition Cost (also known as CAC)?

money-card-business-credit-card-50987Customer Acquisition Cost is a measurement of how much you’re spending on your sales process (you do have a process right?), coupled together with the marketing strategy and channels that make your lead generation or e-commerce sales hum. In other words, it’s the overall cost you incur in the process of getting a new customer to pay your business money.

It’s important to remember that CAC is not necessarily (on its own) a measurement of the effectiveness of your marketing, but rather a reflection on how much a certain strategy, marketing channel, or combination of the two costs for each and every new customer you get. Depending on what you’re selling, your CAC might be really high in terms of cash cost, but the quality of the prospects and leads you’ve gained is also high, shortening the time from the first contact to a closed sale. Alternatively, you may have a CAC that’s very low, but it’ll take you a year to close each piece of new business. Which one is more effective for your business will depend entirely on whether you value time or money more.

Of course, achieving a low CAC with a short sales cycle is ideal and says great things about your process and systems any which way you look at it, and there are definitely ways to help that process along. But that’s a topic for another post.

CAC is also very closely related to CLV, or Customer Lifetime Value. Because remember, you’re not going through the exercise of marketing your business just for a one-off sale.

You want repeat business. For as long as you can possibly get it.

For example, if you spend $35 to get a new customer, you should make every effort to hold onto that particular customer in order to realize the maximum return possible on your investment. Every smart business person knows that customers are an asset; assets that can pump more and more money into your business, in the long run, the more value you give them and the better you treat them.

gold-angelSo treat your customers like gold. Because they are. And you want to be a good person. Right? (say yes)

Companies like Amazon who spend about $160 acquiring each new customer are not spending that money so they can get a one-off sale.  They’re investing it because they know that on average each new customer will bring them much more in revenue down the line.

So in short, if your business is incurring real costs in the process of gaining new customers, which it should be, unless you found a genie that just makes money appear at will… then it’s vital to your bottom line not just to acquire those customers for a sale today, but to maintain and nurture a good relationship with them over the long-term – while knowing exactly how much it costs to get them on board in the first place.

And in case you’re interested, here’s another post showing you exactly how to figure that all out.

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