Customer Acquisition Cost: Formula and Example by Marketing Channel

The Short Answer

What Is Customer Acquisition Cost?

Most owners know what they spend on marketing. Few know what each paying customer cost. That gap is why so many businesses keep the ad that feels like marketing and stop the referrals that feel like luck.

The Formula

How Do You Calculate Customer Acquisition Cost?

1. 1

   Pick a time period

   One month is easy to track and long enough to see a pattern.

2. 2

   Add up what the channel cost

   Money spent, plus any printing, cards, or fees tied to it.

3. 3

   Count paying customers from that channel

   Not likes. Not calls. Customers who paid.

4. 4

   Divide

   Channel cost divided by paying customers equals CAC for that channel.

To get paying customers by channel, you need the lead source for every customer. That takes one question, asked every time: “How did you hear about us?”

Bangor is the shopping and services hub for much of eastern and northern Maine, so customers often travel far to reach it. Factor that reach into acquisition costs with business plans for Maine owners.

Worked Example

What Is a Customer Acquisition Cost Example by Channel?

Take one month for a small pressure washing company. Here is its scoreboard with CAC added:

The blended CAC is about $81. That number alone hides the story. The paid ad got the most likes and produced zero customers. The referrals and the free listing did most of the work for almost nothing. Cut the ad, keep asking for referrals, and the blended CAC drops to about $40.67 ($610 / 15) with the same number of customers.

For Owners

How Do I Know Which Marketing Is Actually Working?

1. 1

   Call your last 10 to 20 customers

   Thank them and ask how they first heard of you.

2. 2

   Start a Lead Source Scoreboard

   Ask every new caller the one question. Each month, count calls and paying customers by source. See the Lead Source Scoreboard.

3. 3

   Keep your best source running

   Busy or not. Stopping it is how feast or famine starts.

4. 4

   Cut after 90 days

   Drop any source that brought no paying customers and move that money to the one that did. Test one new idea at a time.

For Managers

How Do I Measure Marketing Results by Channel?

You or the front desk answer most calls, so the one question is yours to ask. Ask it every time and keep the tally honest, even when the phone is busy. Bring the scoreboard to the owner once a month. Numbers beat opinions in that meeting.

To set next month’s spend from the results, see how to set a marketing budget.

For Business Students

What Is the Difference Between CAC, ROI, and Marketing Attribution?

CAC tells you what one customer costs. ROI compares what you got back with what you spent. Marketing attribution decides which channel gets credit for a sale. The Lead Source Scoreboard is the simplest version of attribution: first touch, recorded by asking the customer.

Comparing the cost to win a customer across channels shows which marketing earns its keep. See which Pompano Beach marketing actually works.

It matters. In a 2016 survey of 1,000 U.S. small businesses, 62 percent said their marketing was not effective or that they did not know.

Source: Infusionsoft and LeadPages 2016 Small Business Marketing Trends Report, reported by MarTech.

Portsmouth’s historic downtown and harbor draw summer and fall visitors. Shops there can plan seasonal ad spend around them, as Dr. Paul’s New Hampshire page explains.

Next Step

What If My Marketing Problem Is Really Something Else?

Sometimes the calls come in and the customers still do not stick. Take the 60-second self-check and see Fire 14 on the pillar for the full fix.

Long sales cycles raise the cost to win each customer. Dr. Paul breaks down why Davie sales take so long to close.

Questions

What Else Do People Ask About Customer Acquisition Cost?