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THREE TIPS TO CONQUER CUSTOMER ACQUISITION COSTS.
Hey Founders,
Ready to conquer your marketing budget? Welcome to the world of Customer Acquisition Costs (CAC). CAC is the price you pay for turning browsers into buyers.
It's a fundamental metric that helps you measure the efficiency of your marketing efforts and make informed decisions regarding your pricing strategy.
CALCULATING YOUR CUSTOMER ACQUISITION COST
Understanding your CAC doesn't require advanced math skills, only a clear understanding of the expenses involved. Here's a straightforward guide to help you calculate your CAC:
Add Up Your Costs: Total all expenses related to acquiring new customers, including marketing, advertising, sales and marketing team salaries, tools, and any other direct expenses.
Count Your New Customers: Determine the number of new customers acquired during the same period. Keep track of sign-ups, purchases, or contracts to ensure an accurate count.
Do The Math: Now, for the simple part. Divide your total costs by the number of new customers acquired. The customer acquisition cost formula looks like this: CAC = Total Marketing and Sales Expenses / Number of New Customers Acquired. Let's put it into an example: If you spent $50,000 on your marketing and sales efforts in 2023 and welcomed 100 new customers, your CAC would be: CAC = $50,000 / 100 = $500. This means, for every new customer, you spent $500.
INDUSTRY BENCHMARKS: WHERE DO YOU STAND?
If you're wondering how you stack up against the competition, I've got you covered. Check out the 2024 Business-to-Business [B2B] and Business-to-Consumer [B2C] industry benchmarks compiled by First Page Sage. It's your chance to benchmark your performance and drive your business forward.
Organic vs. Non-Organic Acquisition: Making Informed Choices
Let's talk about organic and in-organic acquisition. Organic channels, like word-of-mouth and referrals, can lead to long-term growth and loyal customers. On the other hand, non-organic channels, such as paid advertising, provide immediate visibility but come with upfront costs. As founders, it's essential to strike the right balance between the two.
AND FINALLY, AS PROMISED, THREE TIPS TO BUDGETING FOR CAC
Here are three essential tips to help you effectively allocate resources and maximize your return on investment:
1. Calculate CAC per Revenue Stream: Break down your CAC calculation for each Revenue Stream, whether it's B2B or B2C. This granular approach helps you understand the specific costs associated with acquiring customers in different segments of your business.
2. Consider Seasonality of Sales: Take into account the seasonal fluctuations in sales when budgeting for CAC. Adjust your marketing and sales efforts accordingly to account for periods of high and low demand, ensuring your budget is aligned with revenue expectations throughout the year.
3. Budget under Marketing + Sales: Initially allocate your CAC expenses in your Indirect Costs [Marketing + Sales]. As you gain confidence in your CAC calculations, consider moving these costs over to your Direct Costs Calculator. This ensures that your pricing remains competitive and accurately reflects the costs associated with acquiring customers.
THE BOTTOM LINE IS THIS...
Mastering CAC empowers you to budget for your marketing costs with confidence. By understanding the ins and outs of CAC, per Revenue Stream, you can make informed decisions, optimize your strategies, and drive sustainable growth for your business.
ABOUT TAUNYA WOODS RICHARDSON
Taunya is well-known for her straight-shooting, bottom-line-building approach to founder finance. As the Founder of Nail The Numbers, she brings 30+ years of experience in entrepreneurship, finance, and neuroeconomics to our mission of strengthening the minds and bottom lines of Founders across North America.
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