In order for your business to grow you need to calculate and understand your Customer Acquisition Cost (CAC). Many small businesses do not realize the importance of CAC. Many believe that if they constantly gain customers then they will succeed, but this is untrue.
Even if you gain leads or customers, if they are the wrong type then you will have wasted money. You want to gain a large influx of customers but only if they benefit you. This is where CAC comes in. It helps to determine where and how to distribute your marketing dollars.
Calculating CAC
In order to get started, you need to know how to calculate it.
1. Track your marketing expenses for everything that helps you bring in leads and customers
2. For each marketing channel, track the number of customers you acquire in the same period for which you tracked the expense.
3. Divide your expenses per marketing channel by the number of acquired customers from the same source
Here’s an example. Let’s say you spend $2000 setting up a booth at a convention. After the convention you gain 4 customers. Your CAC for the convention would be $500 ($2000/4).
Make sure you repeat this for ALL your marketing channels.
Profit
You always want your CAC to be less than your profit. So if you gained $3000 overall, using the previous example, then you are at a good place. You are gaining money because you spent $2000 on a new customer but earned $1000 more than what you spent.
When you examine the channels you can see which one is raking in the profits and which one isn’t. A lot of this is going to be trial and error but that is required for a business to be successful
50% of businesses fail in the first four years. Don’t be in that 50%. By remembering to calculate your CAC you are already ahead of a majority of other businesses.
For more information head over to the original article: http://www.futuresimple.com/blog/acquisition-cost-and-profit-per-customer/
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