Customer Acquisition Cost Example: Understanding How CAC Affects Sales

If you've ever wondered to yourself, "How is customer acquisition cost calculated?" We've got something for you!

This customer acquisition cost examples guide isn't just about number crunching; it's going to become the lifeblood of your organization's profitability.

Imagine running a marketing campaign without knowing how much it costs to gain a single customer.

Sounds like a shot in the dark, right?

That's why you need to know how to find customer acquisition cost, a key metric that helps you understand exactly what it takes to acquire each new client.

In this article, we'll walk you through a customer acquisition cost example, breaking down each part of the calculation, explaining why it happens, and providing strategies to reduce it.

Ready to learn how to calculate customer acquisition costs and maximize your ROI?

Let's get started!

How to Find Customer Acquisition Cost

It doesn't matter if you're in B2B or B2C; understanding the customer acquisition formula is key to ensuring profitability and sustainable growth.

Picture this situation: You calculate the cost of customer acquisition and notice that it's excessively high. That's an immediate red flag! It indicates inefficiency in your marketing or sales process, whereas low customer acquisition costs mean that you are ready to scale.

Now that you're up to date with what CAC is, let's learn how to calculate it through this customer acquisition cost example and formula:

CAC = Total Costs of Acquisition / Number of New Customers Acquired

Here's how to gather the data:

• Advertising costs: Think digital ads, paid search, social media campaigns, etc.
• Salaries: Calculate the costs associated with your sales and marketing teams
• Software and tools: Remember to include cost software in your tech stack, such as CRMs like Ringy, analytics platforms, and email marketing tools.
• Events and sponsorships: Remember to include expenses if you've attended trade shows or events or donated sponsorships.

Compile these costs and divide them by the number of new customers acquired, and you'll arrive at your CAC.

Now that you've got the gist, we move onto how to measure customer acquisition cost.

Customer Acquisition Cost Example Calculation

Let's bring this to life with a customer acquisition cost example.

Think about a SaaS company offering a subscription-based model with an annual plan. Its marketing efforts include digital ads, SEO, content marketing, and a sales team to convert leads into customers.

Now let's look at their theoretical costs and number of new customers acquired:

• Total advertising costs: $50,000
• Salaries for sales and marketing teams: $30,000
• Software costs (CRM, marketing tools, etc.): $10,000
• Events and sponsorships: $5,000

Total cost of acquisition: $95,000

New customers acquired: 250

Using the cost per customer acquisition formula, we get:

CAC = $95,000 / 250 = $380 per customer

In this customer acquisition cost example, the company's customer acquisition rate cost is $380 to acquire each new customer. If the average customer spends more than $380 in the first year, this could be considered a good CAC.

The trick is finding that sweet spot—spending just enough to drive new customers without undermining your customer lifetime value (LTV) or the long-term revenue you expect from each customer.

Interpreting CAC in Different Business Contexts

Companies are as bespoke as their owners, and how you interpret customer acquisition costs varies depending on your sector and business model. Interpreting customer acquisition cost examples in different business contexts will help you understand the concept better.

Let's have a closer look.

Differences in CAC for B2B vs. B2C Companies

Confused about the difference in CAC between B2B and B2C organizations?

Depending on whether you're targeting public consumers or companies, these two customer acquisition examples give you more context:

1. B2B: In B2B (business-to-business,) the sales cycle tends to be longer, with multiple stakeholders involved in the decision-making process. Although this results in higher customer acquisition costs, the payoff is often larger deals with longer-term contracts. For instance, a SaaS business selling enterprise software might have a CAC of $1,000 or more, but the LTV of each customer could be in the tens of thousands.
2. B2C: In B2C (business-to-consumer), the sales cycle is typically shorter, but the average customer spend is lower. A retail company selling directly to consumers might have a CAC of $50, but if it generates $100 or more in revenue per customer, it's in good shape.

Understanding the key differences between these two models can help tailor your sales and marketing automation strategy to your specific business requirements.

How CAC Varies Across Different Industries

Different sectors also have different CAC standards.

Each industry operates distinctly, commanding its own CAC targets and expectations. Some industries prioritize high-volume, low-cost acquisition strategies, while others focus on long-term relationships with high acquisition costs.

Let's take a closer look at a few customer acquisition cost example benchmarks:

As seen above, CAC benchmarks vary significantly depending on the industry. Understanding the difference above is key for any organization looking to optimize its customer acquisition cost strategies.

No matter your industry, a dynamic understanding of your CAC—and how it relates to your customer lifetime value—will ultimately help you grow sustainably.

What Constitutes a "Good" CAC?

There's no one-size-fits-all answer to what constitutes a "good" customer acquisition cost. It varies based on the industry, business model, and a customer's lifetime value.

However, a widely accepted benchmark is to aim for a 3:1 LTV to CAC ratio—meaning for every $1 spent on acquiring a customer, you should make $3 in revenue over the lifetime of that customer.

Here's a breakdown of what different ratios mean for your business:

Factors such as industry, customer lifetime value, marketing efficiency, and competition all play a role in determining what a healthy CAC looks like for your business.

Let's dive into these factors briefly for a better understanding:

Understanding these factors can help businesses benchmark their CAC effectively and identify areas where they can optimize costs. For instance, businesses can streamline marketing and sales efforts using tools like Ringy, enhancing efficiency and lowering acquisition costs without sacrificing growth.

Strategies to Optimize and Reduce CAC

Once you've calculated your CAC, the next step is optimizing it.

Lowering your CAC while maintaining or increasing your customer lifetime value can dramatically improve profitability.

Here are a few strategies to get you started:

Improving Marketing Efficiency

When it comes to reducing CAC, the first place to look is your marketing efficiency. If your marketing efforts are all over the place, your acquisition costs will be too. The more you can fine-tune your campaigns, the more bang you'll get for your buck.

These two tips can help you get started on the right foot:

1. Leverage data analytics: Look at your current marketing channels and campaigns. Which ones are driving the most leads, and at what cost? Data analytics can help you pinpoint which strategies are working and which are just burning through your budget.
2. Use tools to track customer journeys: Platforms like Ringy allow you to track the entire customer journey—from the first interaction to the final conversion. This insight enables you to optimize campaigns in real time, cutting down wasted ad spend and focusing on what delivers real results.

Here's an example of how this works: Suppose your company runs paid search and content marketing campaigns. Upon analyzing the data, you realize that paid search drives 70% of your leads but accounts for 90% of your total CAC.

What does that mean?

You're spending way too much on paid ads for the return you're getting.

In this case, it would make sense to shift more resources into content marketing, which could bring down your acquisition costs.

Enhancing Sales Processes

Your sales process is another key factor that can either inflate or reduce your CAC. Streamlining your sales workflow with automation tools allows your team to focus on what really matters: converting leads into paying customers.

You free up your sales team to focus on more high-value activities like closing deals, by automating repetitive tasks like:

• Follow-up emails
• Scheduling demos
• Lead qualification

Tools like Ringy's CRM help businesses manage leads, track interactions, and automate follow-ups, making the sales process more efficient and reducing CAC in the process.

Imagine your sales reps spending hours each day manually following up with leads, scheduling calls, and entering data into your CRM. Automating these tasks means they can instead spend that time building relationships and closing deals, leading to higher conversions with less effort.

Retention and Referrals

It's no secret that retaining a customer is way more cost-effective than acquiring a new one. If you focus solely on new customer acquisition, you're missing out on a huge opportunity to reduce CAC. You can drastically lower your acquisition costs by improving retention and encouraging referrals.

The saying, "Keep your customers happy, and they'll stick around," rings true here!

It reduces churn and increases the LTV of each customer, effectively lowering your CAC over time. Studies found that increasing retention rates by just 5% can boost profits by 25% to 95%.

With that said, your existing customers can be your best salespeople.

Offering incentives like discounts, free products, or exclusive services in exchange for referrals can bring in new customers at a fraction of the usual cost. Plus, referred customers tend to be more loyal and spend more, further improving your CAC.

Tools and Software for Tracking CAC

Managing and optimizing your CAC can feel like juggling multiple moving parts, but with the right tools, it becomes much easier to track and streamline.

Let's check out some of the top platforms that help businesses (just like yours) manage and optimize their CAC effectively.

Ringy

Source

When it comes to tracking and managing CAC, Ringy is more than just a CRM—it's a full-service platform designed to simplify lead management, sales automation, and performance tracking. Ringy gives you the insights and tools you need to lower your CAC without sacrificing the quality of your customer relationships.

Here are some of our sales software CRM's key features:

• Lead Tracking: With Ringy, you can monitor the entire customer journey, from the moment they first interact with your business all the way to when they become paying customers. Knowing how leads progress through your funnel helps you refine your acquisition strategy.
• Sales Automation: Imagine being able to automate all those repetitive tasks—follow-up emails, reminders, lead nurturing—so your sales team can focus on closing deals. Ringy automates these processes, helping you scale without increasing manual effort.
• Data Analytics: Ringy provides real-time insights into your marketing and sales performance. This lets you make data-driven decisions that optimize your CAC by identifying high-performing channels and reducing spend on ineffective ones.

Ringy's automation capabilities not only free up time but also reduce the chances of leads slipping through the cracks. With a clearer view of your sales pipeline and access to real-time data, you can fine-tune your marketing strategies to focus on high-converting, cost-effective channels.

HubSpot Sales Hub

Source

While HubSpot is widely known for its all-in-one marketing and sales platform, it's also a highly effective tool for calculating and managing CAC. HubSpot Sales Hub provides the features and insights you need to track customer acquisition costs and fine-tune your strategies over time.

How to calculate the cost of customer acquisition in HubSpot:

1. Calculate your total marketing and sales expenses for a given period (e.g., last quarter). This includes costs like advertising, content creation, events, and sales commissions.
2. Divide your total expenses by the number of new customers you acquired during the same period.

To illustrate this: If you spent $10,000 on marketing and sales and acquired 100 new customers, your CAC would be $100.

One of HubSpot's biggest advantages is the ability to track how your CAC changes over time, helping you adjust for factors like seasonality, competition, and shifting strategies. With HubSpot's built-in reporting tools, it's easy to see whether your marketing dollars are being spent wisely and where improvements can be made.

Google Analytics

Source

Understanding how potential customers interact with your website and digital assets is crucial.

Google Analytics is one of the most comprehensive tools available for tracking customer behavior, understanding traffic sources, and assessing the overall effectiveness of your marketing efforts.

We've compiled a helpful table with key features of Google Analytics for tracking CAC.

Google Analytics provides the insights needed to make data-driven decisions that enhance your marketing strategy. Use Google Analytics to uncover actionable insights into your customer acquisition efforts and make informed decisions that drive your business success.

Start Calculating Customer Acquisition Cost Today!

By now, you should have a solid understanding of how to find customer acquisition cost and optimize it for your business. The real key to success is not just tracking your CAC but actively working to reduce it over time.

With tools like Ringy and a focused approach to improving both your marketing and sales processes, you can achieve sustainable growth while keeping your acquisition costs in check.

Remember, reducing your CAC isn't just about slashing budgets—it's about making smarter decisions.

Let our software be your sidekick in your customer acquisition cost endeavors.

Request a demo to discover the next level of operational efficiency!