Marcia Layton Turner at LegalZoom writes:
Calculating your customer acquisition costs allows you to better understand whether your marketing efforts are profitable.
How to Calculate Customer Acquisition Cost: Start by picking a particular time frame, such as a month, a quarter, or a year. Then add up all of your marketing and sales costs for that time period. You may need to divide any annual costs by 12 if you’re looking at a particular month, or four if you’re calculating per quarter, though the longer the time frame, the more accurate your number.
Then take your total cost for the period you’re analyzing and divide it by the number of sales you had in that same period.
For example, if you spent $5,000 last quarter on marketing and landed 50 customers, your customer acquisition cost (CAC) would be $100. Or if you spent $1,000 and got 1,000 customers, your CAC would be $1.
The two ways to reduce that number are:
- Spend less on marketing while still earning as many customers.
- Spend the same amount on marketing but increase your conversion rate, or the percentage of people who buy from you.