This is a summary of an article written by Brian Balfour (CEO Reforge, ex-vp growth at Hubspot). Full article can be found here.
Cost of Customer Acquisition (CAC) is a key metric, but not easy to calculate
CAC and CPA (cost per acquisition) are used interchangeably — but are completely different metrics
CAC measures cost to acquire a customer. CPA measures cost to acquire something that is not ****a customer. Example, a registration, activated user, or a lead
Basic calculation for CAC and why is it wrong:
- CAC = (Marketing + Sales Expenses) / (# of New Customers Acquired)
- The above is missing details - like avg. time for lead conversion, support costs (where applicable), split between truly new vs. returning customers.
How to accurately calculate CAC:
- You should know the time between your marketing/sales first touch point and when someone becomes a customer
- Include all relevant expenses in the Marketing + Sales expenses - like salaries, overheads, product / engineering / support costs
In conclusion, true CAC involves a lot more than a simple, one-size-fits-all equation.
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