How to Calculate Customer Acquisition Cost

Hi. Today we’re going to be talking about customer acquisition cost. As the head of marketing for SmartBooks, it’s my job both to bring in new customers to SmartBooks and to do so at a cost effective price. So, how do I calculate what is a cost effective price? That comes down to the customer acquisition cost, or CAC. So how do I calculate CAC?

Calculating Customer Acquisition Cost for a Single Channel

So I like to look at it two different ways. One, there’s the cost of acquisition of a specific marketing strategy. Take for example a trade show. I’m going to calculate the total cost of attending that trade show. If there are booth sponsorship fees, if there are fees for presenting and producing booth graphics, if there’s any collateral I need to produce for the event that I’ll be handing out, any materials I’ll be handing out, all of those get calculated together and that is the total cost of that event.

Then, I want to fast forward a few months and I’m going to look at all the new customers that we brought into the SmartBooks fold over those few months that came directly from that trade show and I’m going to divide the total cost by the number of customers and that will give me the customer acquisition cost for that one marketing strategy.

Calculating Customer Acquisition Cost for a Time Period

We can also look at cost of customer acquisition across our full suite of marketing channels. So for this I’ll look at a specific timeframe, particularly a month in time. I’ll look at that full month in time and I’ll sum up all of our marketing and sales cost. This will be inclusive of wages and salaries for marketing and sales executives that work on the team. I’ll also look at the hard costs of marketing channels, specifically things like Google AdWords. Maybe if we did a print ad in that particular month, I’ll include the print insertion order as well as any production fees to produce marketing materials for that time frame.

Then I will divide the sum of all of those marketing costs by the total number of customers that we brought in during that time frame and that will reveal to me the customer acquisition cost for that time period. And that’s how to calculate Customer Acquisition Cost.