Revenue, customer loyalty and profit and loss are metrics many business owners focus on to decide how fast their business is growing, if it is growing at all. In this time when many businesses can get leads information and attract leads online, many brands now focus on lead and customer interaction with their brands, in addition to other metrics they have been focusing on for a while now.
Unfortunately, many do not focus on an equally important metric: Customer Acquisition Cost (CAC). Many brands know the value of CAC in their businesses, but many of them downplay its significance.
In this article, we will look at the definition of customer acquisition cost, as well as three reasons why you should focus on this metric if you want business growth. Let’s get started.
What is Customer Acquisition Cost?
Customer Acquisition Cost is the sum of all the costs associated with acquiring a customer, including all costs of sales and marketing. It is the sum of all the money you spend to bring a customer through your door and get them to buy.
If you run ads on Facebook to attract leads online or to get leads information, you have to add that money to your customer acquisition cost. Every money spent, no matter how little, to acquire a customer is part of your brand’s CAC.
Why is it Important to Focus on Your Customer Acquisition Cost?
There are many obvious reasons why you should focus more on your customer acquisition cost, but we’ll consider just three below:
- It helps to decide if you want to keep spending money to acquire customers
Many big brands spend a fortune to create brand awareness, and it sounds stupid to many smaller brands. But these big brands understand that the return on investment of their brand awareness campaign is much more than their investment in customer acquisition.
Your lead and customer interaction with your brand, and the sales generated from this interaction will determine if you should keep going, but you cannot understand the impact this result will have on your business unless you know your customer acquisition cost.
- It helps you make the decision to use a different channel to acquire customers
If you find out that specific channel is not bringing in enough customers to make the customer acquisition cost spent on it worth your money, then you can choose to stop using that channel, and focus on other ones. There are many channels you can use to acquire customers like social media, email, live chat, and so on, so there are many choices to try out, rather than getting stuck in one channel option.
- It helps investors decide if your company is scalable
CAC is a metric every investor is looking out for in every startup they want to work with. Investors are very interested in making sure that the CAC of a startup is significantly lower than the lifetime customer value of the customers and will not work with startups that cannot provide a good relationship between these metrics, unless there is a strong justification that this relationship will change in a not-too-distant future.
Conclusion: CAC is a Metric that can Decide the fate of your Business
According to an article on neilpatel.com, CAC is the one metric that can determine your company’s fate. This is true for any business in every industry in the world. If you haven’t done so yet, start working on calculating your customer metric. This will help you make important decisions that can determine your company’s fate, and determine how fast your company can grow.