From the course: Growth Marketing Foundations

Measure customer acquisition cost (CAC)

From the course: Growth Marketing Foundations

Start my 1-month free trial

Measure customer acquisition cost (CAC)

- Customer acquisition cost is the total cost to acquire a customer. It's all the marketing dollars you spent to generate that conversion. And it's a key metric that you'll need to measure and leverage to track your growth progress. You'll use this metric to understand where you have the most profitable channels, and you'll generate ideas to work to lower that customer acquisition cost. Now a lower CAC leaves more money in the bank to allocate towards acquiring more customers. Now additionally, when your acquisition cost is low, you'll spend less time recouping those costs. Typically, we evaluate the health of our customer acquisition costs against the customer lifetime value. When we know how much a customer is worth to our business, we can set realistic targets for how much we can invest to acquire that customer. A good rule of thumb is to get your customer acquisition cost down to one-third of your lifetime value. Now, one thing I want to point out is that marketers often mistakenly interchange customer acquisition cost with cost per acquisition, and they are totally different. CAC is measuring the cost to bring in a customer. CPA is measuring the cost to acquire something, a registration, an email, a sale, a lead, and so on. Now as is common with many metrics we measure in growth marketing, there's debate about the most appropriate way to calculate your customer acquisition cost, and this is because there are time delays, returning customers that reactivate, and if you have free trials, there may be costs associated with servicing that customer. Now, Andrew Chen has a great worksheet that you can use to factor in the right way to calculate CAC for your business, and you can find it with a Google search for Andrew Chen customer acquisition cost. Be sure you're keeping tabs on your customer acquisition cost and keeping it in check as you trial different growth initiatives.

Contents