Customer Acquisition Cost (CAC) Calculator – Advanced Version
Customer Acquisition Cost (CAC) is the total expense incurred by a business to acquire a new customer. It encompasses marketing and sales costs, including advertising expenses, sales team salaries, promotional activities, etc. CAC helps businesses evaluate the effectiveness of their marketing and sales efforts.
How to use the Customer Acquisition Cost Calculator (CAC) calculator
Step 1: Enter the required values in the input fields marked with an asterisk. If an input field is not relevant to your business or you don’t have the data, enter 0.
Step 2: Click the “Calculate CAC” button.
Step 3: Review the CAC Value.
Note: If you’ve provided the CLTV value then the CLTV : CAC ratio will also be calculated. A favorable CLTV to CAC ratio is 3:1 or higher, with 4:1 considered excellent. Ratios above 5:1 suggest potential for accelerated growth and may indicate underinvestment in sales and marketing.
Customer Acquisition Cost - Google Sheets template
If you’d like to use a Google Sheets CAC calculator template, you can get it here.
Customer Acquisition Cost - Excel template
If you’d like to use an Excel CAC calculator template, you can download it here.
Customer Acquisition Cost formula
To manually calculate Customer Acquisition Cost follow these steps:
Step 1 – Calculate Marketing Expenses: Add up all the marketing expenses. Marketing expenses can include Marketing Team Salaries, Paid Advertising, Search Engine Optimization (SEO), Content Marketing, Marketing Software, Email Marketing, etc.
Step 2 – Calculate Sales Expenses: Add up all the sales expenses. Sales expenses can include Sales Team Salaries, Commissions, Sales Software, Travel, Events, etc.
Step 3 – Calculate Total S&M Expenses: Add the total marketing expenses (step 1) to the total sales expenses (step 2).
Step 4 – Calculate Customer Acquisition Cost (CAC): Divide the total S&M expenses (from step 3) by the number of new customers acquired.
CAC calculator inputs and outputs
Paid advertising
Paid advertising is the practice of promoting products or services through paid channels such as television, radio, print, and outdoor billboards, along with digital platforms like search engines, social media platforms, or display networks. Marketers pay for exposure on these mediums to reach their target audience.
For example, consider a B2B software company that offers project management solutions. They may invest in paid advertising by running targeted advertising on LinkedIn, a popular professional networking platform. Through LinkedIn, they can target decision-makers and professionals in industries like IT, marketing, or consulting who may be interested in their project management software.
Social media marketing
Social media marketing involves leveraging social platforms like Facebook, Instagram, and X / Twitter to promote products or services. Through content creation, engagement, and targeted advertising, businesses connect with their audience, build brand awareness, drive website traffic and ultimately boost sales or leads.
For example, consider a B2B company that specializes in providing cloud-based customer relationship management (CRM) software. To market their services on social media, they might create informative content such as blog posts, infographics, or video tutorials highlighting the benefits of their CRM solution for businesses. They could also engage with industry-specific groups and forums on platforms like LinkedIn, sharing insights and participating in discussions related to CRM, sales, and business development. Additionally, they might run targeted LinkedIn advertising campaigns to reach decision-makers in various industries, showcasing their CRM software’s features and advantages.
Search Engine Optimization (SEO)
Search Engine Optimization (SEO) is the process of improving website visibility in Search Engine Results Pages (SERPs). It involves optimizing website content, structure and technical aspects to match search engine algorithms. The goal is to increase organic traffic, thus driving more qualified visitors to the website.
For example, consider a B2B software company offering project management tools. To improve their SEO, they optimize their website by incorporating relevant keywords such as “project management software” into their content, meta tags, and headings. They also create high-quality blog posts addressing industry-related topics like “effective project management strategies.” Additionally, they work on building backlinks from reputable websites in the software or business niche. As a result, when potential customers search for terms related to project management software, their website appears higher in search engine results, driving organic traffic and potential leads.
Content marketing
Content marketing involves creating and distributing relevant content to attract and engage a target audience. This content can take various forms, including blog posts, articles, videos, infographics, and podcasts. The aim is to build trust and educate the audience rather than directly promote a product or service.
For example, consider a B2B software company specializing in email marketing solutions. To implement content marketing, they could create a series of blog posts addressing topics relevant to their target audience, such as “10 Effective Email Marketing Strategies for B2B Businesses” or “How to Improve Email Open Rates.” They might also produce informative videos demonstrating their software’s features or hosting webinars on email marketing best practices. By consistently delivering valuable content, they attract professionals seeking to enhance their email marketing efforts.
Influencer marketing
Influencer marketing involves collaborating with individuals who have a significant following and influence on social media platforms. Brands partner with these influencers to promote their products or services to their audience. Influencer marketing increases brand awareness, engagement and drive sales or conversions.
For example, consider a B2B software company that specializes in productivity tools for businesses. They might collaborate with a prominent business consultant or industry expert who has a substantial following on LinkedIn. The consultant could create content such as blog posts, videos, or webinars showcasing how the software enhances productivity in the workplace. By endorsing the software to their audience, the influencer leverages their credibility and authority, driving interest and engagement among potential B2B customers.
Email marketing
Email marketing involves sending targeted emails to prospects or clients. It is used by companies to promote products/services, share updates, and nurture leads. Effective email marketing focuses on delivering valuable content, personalization, and building relationships to drive engagement and conversions.
For example, consider a B2B software company offering project management solutions. They might use email marketing to nurture leads and engage existing customers. For example, they could send personalized emails to leads who have signed up for a free trial, providing tips on maximizing the software’s features. Additionally, they might send monthly newsletters to existing customers, highlighting product updates, industry news, and helpful resources.
Events and trade shows
Events and trade shows are in-person or virtual gatherings where companies showcase products, services, or ideas. They provide opportunities for networking and generating leads. These events allows companies to increase brand visibility, build relationships with potential clients, and gain insights into market demands.
For example, consider a B2B marketing agency specializing in digital marketing services. They might participate in a trade show focused on technology and innovation, where they set up a booth to showcase their expertise in SEO, social media marketing, and content creation. At the event, they engage with attendees, distribute informative brochures, and offer demonstrations of their software tools for analytics and campaign management. Through networking with other businesses and attending seminars, they not only increase brand awareness but also establish valuable connections with potential clients and partners.
Average Order Value (AOV)
Average Order Value (AOV) represents the average monetary value of orders placed by clients within a specific time frame. It is calculated by dividing the total revenue generated by the number of orders. AOV helps companies understand customer purchasing behavior, optimize pricing strategies and increase profitability.
For example, consider a B2B software company that offers subscription-based project management software.
In a given month, they have 100 customers, and their total revenue from subscription fees is $10,000.
To calculate the AOV, we divide the total revenue by the number of customers: $10,000 / 100 = $100.
This means that, on average, each customer generates $100 in revenue for the company.
Average customer lifespan
Average customer lifespan is the average duration a customer continues to engage with a business before ceasing to make purchases or interact with the brand. It is used to assess customer retention and loyalty. It helps predict future revenue, tailor marketing strategies, and improve customer satisfaction.
For example, say a B2B software company provides project management solutions with an average customer lifespan of five years.
If a customer pays an annual subscription fee of $1,200, over the course of five years, their total revenue contribution would be $6,000 ($1,200/year * 5 years).
Understanding this average customer lifespan allows the company to forecast revenue, calculate lifetime value, and implement strategies to extend customer relationships beyond the initial five-year period.
Customer Lifetime Value (CLTV)
Customer Lifetime Value (CLTV) represents the total revenue a company can expect from a single customer throughout their entire relationship. It takes into account the average purchase value, frequency of purchases, and the duration of the customer’s relationship with the company.
For example, consider a B2B software company providing subscription-based project management tools. They calculate the CLTV by analyzing historical data from their customer base.
For instance, they may find that the average customer stays subscribed for two years, pays a monthly fee of $100, and makes additional purchases or upgrades totaling $200 annually.
Thus, the CLTV for each customer would be $2,400 ($100/month * 12 months/year * 2 years + $200/year).
With this information, the company can make informed decisions about customer acquisition costs, pricing strategies, and retention efforts to maximize their CLTV and overall profitability.
CLTV : CAC ratio
The CLTV : CAC ratio indicates the effectiveness of acquiring customers relative to their long-term value. A ratio of 3:1 or higher is generally favorable, showing efficient customer acquisition. Ratios above 5:1 suggest potential for accelerated growth and efficient marketing investment.
For example, consider a B2B software company offering project management solutions.
Suppose they calculate the CLTV for their customers over a three-year period to be $15,000.
Now, let’s say their total marketing and sales expenses incurred to acquire new customers during the same period amount to $5,000.
In this case, the CLTV : CAC ratio would be 3:1 ($15,000 CLTV / $5,000 CAC).
This indicates that for every dollar spent on customer acquisition, the company generates $3 in lifetime value from those customers.
CAC Recovery Time
CAC Recovery Time refers to the period it takes for a business to recoup the expenses incurred in acquiring a new customer through their subsequent revenue contributions. It measures the efficiency of customer acquisition efforts, with shorter recovery times indicating faster return on investment (ROI).
For example, consider a B2B software company that offers a project management tool.
Suppose the company spends $10,000 on marketing and sales efforts to acquire new customers in a month.
During that same month, these new customers generate $20,000 in revenue for the company.
The CAC recovery time would be one month because the revenue generated from the new customers covers the acquisition costs within that period.
This indicates that the company is efficiently recouping its customer acquisition expenses and achieving a rapid return on investment.
Disclaimer: The Customer Acquisition Cost Calculator is provided for informational purposes only. Results generated by the calculator are estimates based on the inputs provided and should not be considered as financial or investment advice. Actual costs may vary depending on various factors, including market conditions, industry trends, and business strategies. Users are encouraged to consult with financial professionals or conduct further analysis before making business decisions based on the calculator’s results.
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