Customer Acquisition Cost index or CAC is one of the oldest indicators in advertising and marketing.
You must have heard the saying that it costs seven times more to attract a new customer than to keep an existing one.
Of course, keep this point in mind that everyone reports this ratio in a different way according to their own taste and based on their studies and experiences, but what is important to us is that an issue called customer acquisition cost is not a new issue and it has always been It is mentioned in marketing and sales and advertising .
But in recent years, with the development of information technology and the spread of digital marketing as a result , calculating the cost of customer acquisition, and in other words, measuring the effectiveness of advertising activities, has become much simpler and more accurate than in the past, and this issue has helped to make the discussion of the cost of customer acquisition an influential issue. Become in marketing and advertising.
Calculation of customer acquisition cost index
On the surface, the customer acquisition cost index can be easily calculated.
It is enough to divide the total costs you have spent to attract customers by the number of customers you have attracted.
The cost of attracting customers through exhibitions
Let’s say your company sells scanner devices on a large scale and industrially.
You have spent a total of one hundred and twenty million tomans and participated in a specialized exhibition in your field of work.
If you finally got three customers in this exhibition, you can assume that the cost of attracting each customer was 40 million tomans.
The cost of attracting customers through advertising banners
Suppose you have a web design training site . You have paid six million tomans to place your banner on a news website for one week.
The result of your advertisement is that ten people have registered in the training courses of your site. It can be said that the cost of attracting each customer was six hundred thousand tomans.
Factors influencing the cost of customer acquisition
Keep in mind that calculating the customer acquisition cost index is not that simple and there are many tips and subtleties in calculating the customer acquisition cost index, which we will examine below with examples of these sensitivities and subtleties:
Excess costs
All exhibition expenses are not related to booth rental, decoration, food, and transportation.
Probably, some of the company’s experts will also be involved in the exhibition.
The space and atmosphere of the exhibition reduces the focus of your company temporarily, and everyone devotes more or less a part of their mind and time to related aspects.
Maybe some of your internal sales meetings will be canceled or rescheduled and you will be charged more than the accounting fee.
Inaccurate statistics
One of the serious opponents of the cost of attracting customers are advertising agencies that own the media, because they prefer to convince their customers that they should not enter into these calculations due to the high cost of some media and they should remember that anyway, the brand The company grows and stabilizes, and these kinds of achievements are not included in the customer acquisition index.
How much you trust such a claim will definitely depend on the type of business you run.
Also, if you consider advertising as branding , you must define quantitative criteria for the elements of your brand and measure them.
But anyway, to reduce such an error, companies usually consider a wider time frame in high-cost advertising such as environmental advertising.
For example, the cost of advertising in one year is calculated and divided by the number of customers in the same year. In other words, they do not limit the calculation time to the period of the advertising campaign in order to be more accurate in this field.
Research in advertising
If you are going to take these types of indicators seriously and consider them as decision criteria , it is logical to define a task under the title of research in advertising.
In a small company, this can take a few hours of your time, and in a large company, it can take up an entire department.
Remember that this unit is supposed to measure and optimize the effectiveness of your ads . Therefore, its costs are well compensated in case of correct and scientific management.
Customer lifetime
We must be careful that dividing costs by the number of customers cannot always lead us to the right decision .
In the example of the exhibition, it is possible that the established customers will buy from you in the future. Or those who enroll in one course may enroll in other courses later.
However, if the cost of attracting customers is higher than the profit of your product, don’t simply say that this promotion is not economical for us.
Still, the cost of acquiring a customer may be a small number compared to the customer’s lifetime value, and your advertising may be completely economical and justified.
Do you have successful or unsuccessful experiences of calculating customer acquisition cost index to share with us? We will be happy to share your experiences with us.
