As Australian SMEs plan for continued growth, understanding how much it costs to win a new customer – your Customer Acquisition Cost, or CAC – is absolutely vital. It’s a core metric for profitability, and one we see consistently overlooked. Simply put, CAC tells you how much marketing and sales investment is needed to bring one new paying customer on board. Without knowing this, it’s incredibly difficult to assess the true return on your marketing spend.
Calculating CAC isn’t complex. You add up all the costs associated with acquiring customers – that includes advertising spend, marketing salaries, software costs, and even sales commissions. Then, you divide that total by the number of new customers acquired during the same period. For example, if you spent $5,000 on marketing and gained 50 new customers, your CAC is $100.
Here are a few key insights to keep in mind:
- CAC isn’t static: It will change depending on the channels you’re using. Facebook ads might have a different CAC than Google Search, or a referral program. We recommend tracking CAC by channel to see where your money is working hardest.
- Lower isn’t always better: A very low CAC *could* indicate limited reach. Focus on a sustainable CAC that allows for profitable growth, not just the lowest possible number.
- CAC and Customer Lifetime Value (CLTV) are linked: Ideally, your CLTV – the total revenue a customer generates over their relationship with your business – should be significantly higher than your CAC. A common benchmark is a CLTV:CAC ratio of 3:1 or higher.
- Optimisation is ongoing: Regularly analyse your CAC and look for ways to improve it. A/B testing ad copy, refining your targeting, and optimising your sales process can all have a positive impact.
In the current economic climate, efficient customer acquisition is more important than ever. Don’t fall into the trap of simply spending more on marketing without understanding the return. By diligently tracking and optimising your CAC, you’ll be well-positioned to achieve sustainable, profitable growth in the years ahead. Your next step should be to calculate your current CAC and identify one area for immediate improvement.
