How To Calculate Your Client Acquisition Costs
What are Client Acquisition Costs?
If you sell anything – you have client acquisition costs (also known as CAC). CAC represents exactly how much money it costs you to obtain a client or customer.
How do I find my Client Acquisition Cost?
To find your CAC, simply divide all the costs spent on acquiring more customers in a specific timeframe by how many customers you acquired during that time. The costs associated with getting more customers is typically referring to your total marketing expenses during that time. However, if you get clients by going to networking events, hosting workshops, or anything else that costs time or money – you may want to go a step further by including those costs too.
Here’s what that formula looks like:
Total Cost To Aquire Clients ÷ Total Clients Acquired
If you spent $100 in May to run a Facebook ad that lead to 10 sales, your CAC for May would look like this:
→ Math: $100 ÷ 10 = 10
→ May Client Aquisition Cost = $10 /customer
What’s a good Client Acquisition Cost?
CAC is going to vary for every business. As the business owner, it’s up to you to decide how much you’re willing to spend to obtain each customer and whether that cost is going to be for a one-time purchase or over the lifetime of that customer.
While we don’t believe in a standard for every business, we recommend having a CAC ratio between at least 3:1 and 4:1 but under 6:1. (As in, your customer spends 3 to 4 times more money with you then it cost to obtain them.)
Why? Well, ideally you’d bring in more money than it cost to obtain a customer or break even. Add in taxes on the money you made, and it’s better to make 3 to 4 times per customer in order to actually net a profit. Any CAC over 6:1 may indicate that you aren’t spending enough to get quality customers who are going to purchase from you again and again.
Why was this included in the planner? I’ve never worried about this before.
You’re the real-deal, Boss. Real businesses need to know how much it costs them to obtain a client or customer because they need to make a profit. If you don’t calculate your CAC, you could fall victim to spending so much time or money to obtain customers that you don’t actually make a profit (but don’t know it).
Think of it this way:
If you’re a service-based business who charges based on a price per hour or per package, you need to make sure your CAC isn’t higher than your hourly rate times either how many hours you’re putting into each project, or how much your package is. If you’re spending more to get your customers than you actually make after taxes, you may need to raise your prices, find a faster way to work or get your CAC down to at least a 3:1 ratio.
For eCommerce businesses, you need to make sure it’s not costing you more money to get a customer than the average checkout price spent per customer. If your customers on average aren’t spending as much as it costs you to get them to the checkout page – you have a problem!
If you’re a course creator, it’s important that you aren’t spending more to get your students than your actual course! Add on taxes and what you’d like to get paid, and you’ll see how important it is to make sure you know your CAC at all times.
But like we say all the time – you own your business and you make the rules. We're just here to help you succeed.