One of the most important marketing metrics is the Cost of Acquiring a Customer or CAC, yet it wears a dark cloak.
Read on for the most important watch-outs for marketers. 👀
Why is CAC it such an important metric?
Well it demonstrates how good your marketing is at acquiring customers. So a lowering CAC represents your increasing marketing effectiveness.
However, it also represents a major cost of doing business with serious implications on your overall margin and profitability.
What is it exactly?
What seems like a relatively simple calculation of total marketing spend divided by total customers over a specific period of time at first glance, is anything but when you dig into the detail.
Importantly and crucially, the total sales and marketing cost includes all program and marketing spend, salaries, commissions, bonuses, and overhead associated with attracting new leads and converting them into customers.
Watch-outs for marketers:
There is a real murkiness to the metric, where ‘reality’ is often masked it in order to show CAC in a more positive light.
So let me explain 3 watch-outs so you don’t get caught out. 💪
1. There is usually a distortion of the costs that go into this calculation. Rather than total costs often it is just the direct costs that feature and will make the CAC more favourable. Think when you take this metric directly from a social media platform.
2. Be aware of a blended CAC, which is the total costs divided by total customers acquired, regardless of how the customers were acquired. Typically, you will have a combination of organic and paid acquisition. By blending the CAC of all acquisitions you are over-egging how good your marketing activities are and presenting a CAC that is unrealistic. So you must remove organic customer acquisitions from your CAC calculations and refuse a blended CAC figure.
3. Huge watch-out when making investment/budget decisions; we believe that CACs remain either static or indeed reduce over time. If you look at a simple law of economics, as scarcity of supply increase so will the price of the goods. Media inflation is real and must be accounted for.
Now you know what to look out so don’t get tripped up. ⚡