In this series of articles, I have decided to introduce you to the most important indicators that startups in the Pre-seed and Early stage stage need and tell you important points that you probably know less about.
Customer Acquisition Cost or CAC
In a simple definition, CAC, which stands for Customer Acquisition Cost, refers to the total cost to acquire a customer, which also has a simple formula. To calculate it, you just need to choose a period of time, divide the total costs you spent on marketing and advertising by the number of customers you attracted. For example, last month you spent $200 on advertising and attracted a total of 10 customers. In this case, the CAC in this period is equal to 20 dollars. That means you spent $20 to acquire each customer.
But how will CAC help you?
The story is a bit more complicated than the calculation I mentioned above. Let's imagine together that you have an advertising campaign that has been implemented over the past month through 3 different channels, namely Google Ads, Instagram Promotion, and several influencers.
You allocated a total of $300 for these three channels, and all three channels had an equal budget of $100.
You were able to attract 4 customers through Google Ads, 5 customers through Instagram promotion, and 10 customers through influencers.
In this case, CAC is calculated for Google ads equal to $25, for Instagram promotion equal to $20, and for influencer marketing $10.
The first important point here is that the total CAC of the campaign is actually the average of the total CAC from all advertising channels. That means your total campaign CAC is $15.78. It is important to calculate the CAC of all channels separately in a campaign so that you can strengthen the more effective channels and remove the more expensive channels from the campaign.
But don't rush and don't decide too soon. Another point is very important.
Your campaign has been running for a month. Try to calculate the CAC for each ad channel over 4 separate weeks. This point is important because the increase or decrease of the CAC rate in consecutive weeks also shows you the continued effectiveness of the same channel.
In this case, you will completely understand whether the CAC is increasing or decreasing in each channel. Now, with a higher view, you can understand that the channel that has lower CAC than others is increasing over time, and the channel that has higher CAC is decreasing over time. This awareness of data allows you not to hastily choose channels.
Now do you believe that numbers alone lie and you are the one who should understand the true meaning of indicators with a proper analysis?
Write me your opinion down below in comments