Know your target market. Just like an athlete hearing a motivational speech, marketers hear that message daily these days. But what is the cost of winning that customer? Data-driven marketers turn to customer acquisition cost (CAC) to start talking about what is the true cost to win a customer segment.
To appreciate the value of that cost, let’s look at the definition.
Defining Customer Acquisition Cost
Customer acquisition cost is the total sum of marketing costs for attracting a customer segment divided by the total sum of sales from that given segment.
It is a ratio that describes the total sales and marketing cost required to acquire a customer. The ratio offers strategic guidance to connect your marketing to customers, because it relies on all the marketing factors that account for customer acquisition, as well as the costs.
CAC vs Return on Advertising Spend (ROAS): Differing Perspectives
CAC seems similar to return on advertising spend, a metric I explained in a previous post, but it really takes it to the next level in regards to investment questions for comparing an expense to what is gained from that expense. The difference lies in what perspective the ratios are meant to address. ROAS examines sales from the perspective of specific digital ad campaigns. CAC examines revenue against the cost of acquiring that revenue from the perspective of total marketing expense. ROAS is a very specific application, digital ads, while CAC encompasses…