Have you truly considered the cost of acquiring a new customer? While you may keep an eye on how much it costs for your sales team to attend conferences or you itemize travel expenses for pitches to potential clients, it’s easy to lose sight of overall customer acquisition costs (CAC) when you’re busy managing the multiple aspects of your business.
For every company that runs on recurring revenue, acquiring new customers is the momentum that keeps your business afloat. However, many start-ups and fledgling companies do not give their CAC the attention it deserves, diminishing their profitability. Especially in early stage companies, where capital is less available, fully understanding and efficiently managing your CAC will impact your success.
Explore the meaning of CAC, the expenses included within it, and the relevance it has for your company.
Costs Associated With Customer Acquisition
In its most basic form, your CAC is simply the cost associated with bringing in a new client, divided by the number of new customers you acquire in a period—be it a month, quarter or year. When defining your CAC, look to these specific areas of your business and the costs associated with each.
We’ve seen it countless times: A charismatic CEO starts a business and then hires a sales team that can’t sell the product as well as he/she does. The most important hire a CEO can make is a strong head of sales. The costs associated with operating your sales team are undoubtedly the greatest percentage of your CAC but often the most justifiable.
Sales Team Salaries
While hiring quality salespeople may cost more upfront, their long-term value justifies the hires. Their salaries impact your CAC, but the best salespeople quicken your sales cycle and can decrease the cost of acquisition.
Do your salespeople attend conferences or speak at events? Do they make in-person visits to potential clients? While these lead generation activities bring in new clients, you must consider the cost of traveling to the event, meals and accommodations.
The second factor in your CAC is your marketing investment. Presenting your company’s best image to clients is a sunken cost of acquiring new business.
Are you employing a marketing director? How about a vendor to run your blog or social media sites? The resources you have allocated to marketing efforts are conducting outreach to generate leads. Any salaries or freelance costs to run your marketing machine adds to your CAC.
A new website, whether developed in-house or outsourced, is arguably the most valuable lead generation asset, but it requires an investment of time and money to complete.
The Impact of Customer Acquisition Costs on Your Business
For startups to have a viable business model, CAC is an especially important metric to track. Because startups are in constant need of new clients and monthly recurring revenue generation, the costs associated with those enterprises carry a lot of weight on profitability.
View your CAC as an investment in growing your business. These are costs you must undertake to increase your cash flow and boost revenue. Consider including your CAC in with your profit and loss statement metrics, tracking it monthly to evaluate potential improvements.
Do you have questions about your CAC? Contact our financial experts today.