Neha Dhudhani
2 min
In today's time, acquiring customers have become both expensive & challenging leaving decision-makers with numerous questions such as:
đź“ŤAre the customer acquisition spends justified, what is the limit, when should we cut our loses?
đź“ŤHow to measure the efficiency & effectiveness of customer acquisition efforts?
đź“Ť How to optimize spending & improve the return on investment?
One of the metrics which can help decision makers answer these questions is Customer Acquisition Cost (CAC).
👉 It is the cost incurred by a company to acquire a PAYING CUSTOMER. Simply, CAC is the total cost of Sales & Marketing divided by the total number of new customers acquired over the measurement period.
👉For businesses, CAC plays a central role in aligning all departments towards a common goal of efficient growth.
It helps:
đź“ŤSales team evaluate the effectiveness of their strategies, tools & processes
đź“ŤMarketing team determine which channels & tactics generate better results
đź“ŤFinance team make informed budget allocations.
đź“ŤManagement make informed decisions about capital deployment, fundraising, and
 financial planning.
Further, in the early-stage startups, CAC & CAC payback help management in forecasting cashflows & liquidity while also managing cash burn and runway.
👉For investors, the importance of CAC varies depending on the stage of investment.
📍During the seed funding round, investors are more interested in the potential of the startup’s idea and the caliber of the team.
đź“ŤHowever, as the startup progresses to further rounds of fund raise, CAC becomes increasingly important as investors want that the business acquires customers in a cost-effective manner & has a clear path to profitability.
👉Understanding CAC, may result in more than what meets the eye.
📍An industry’s CAC is not one-size-fits-all. Customizing CAC benchmarks to align with a particular company's strategy & stage of business operations is crucial, eg- Lakme India’s CAC may not be the correct benchmark for that of Amway’s.
đź“ŤWhen CAC increases overtime, it serves as a warning signal. It is expected to reduce overtime due to continuous improvements in lead quality, conversions, and an increase in organic traffic.
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