CAC

CAC, customer acquisition cost, is what it costs to win one new customer. It covers the work of the sales department as well as advertising. A new customer is someone who bought from you for the first time.

The top of the formula is acquisition costs for the period: advertising spend from the ad accounts, the pay of sellers and the head of sales for the time they spend on new customers, and smaller items such as the CRM subscription. The bottom is new customers: won deals in the period whose contact had no earlier won deal in the CRM. Example (invented numbers): in the worked example, $600 is advertising, $1,800 is the sales department's pay and $100 is other costs.

Costs: advertising and the work of the sales department. A new customer is one who bought for the first time.

($600 + $1,800 + $100) ÷ 3 customers = about $833.

Calculate CAC monthly, because pay and invoices come monthly. The owner and the head of sales read it together, split by channel where the costs can be split. One month says little; watch the trend over three to six.

It tells you how much you can spend to win a customer. Put it next to profit per deal. If a customer costs more than the first sale leaves, every new customer makes you poorer until they buy again. Example (invented numbers): a CAC of about $833 against a profit per deal of $900 means the first sale barely covers acquisition.

That is where LTV comes in: you pay CAC once and earn LTV over all purchases. Cost per inquiry is the first step of CAC, and ROMI shows the return on the advertising part only.

• Counting only advertising. That gives you an advertising cost per customer; add the work of the sales department and you have CAC.
• Dividing by all customers, repeat ones included. A repeat purchase needs no acquisition, so count first-time buyers only.
• Including pay for work that is not acquisition. If a seller also looks after existing customers, count only the share of their time spent on new ones, and write that share down.
• Calculating it once a year. A monthly CAC shows the month a channel or a new seller starts costing more. A yearly number hides it.

By Friday, the owner writes last month's acquisition costs in three lines: advertising, the sales department's pay for work on new customers, other costs. The head of sales counts the month's won deals in the CRM where the customer bought for the first time. Divide the costs by that count and put the result next to the same month's profit per deal. If CAC comes out higher, decide at the next weekly meeting which channel you check first.

Which numbers to check every week, with one definition for the whole team.