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Delving into CAC

In today's time, acquiring customers have become both expensive & challenging leaving decision-makers with numerous questions such as:


๐Ÿ“Are the customer acquisition spends justified, what is the limit, when should we cut our loses?

๐Ÿ“How to measure the efficiency & effectiveness of customer acquisition efforts?

๐Ÿ“ 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).


๐Ÿ‘‰ 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.


๐Ÿ‘‰For businesses, CAC plays a central role in aligning all departments towards a common goal of efficient growth.


It helps:

๐Ÿ“Sales team evaluate the effectiveness of their strategies, tools & processes

๐Ÿ“Marketing team determine which channels & tactics generate better results

๐Ÿ“Finance team make informed budget allocations.

๐Ÿ“Management 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.


๐Ÿ‘‰For investors, the importance of CAC varies depending on the stage of investment.


๐Ÿ“During the seed funding round, investors are more interested in the potential of the startupโ€™s idea and the caliber of the team.

๐Ÿ“However, 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.


๐Ÿ‘‰Understanding CAC, may result in more than what meets the eye.


๐Ÿ“An industryโ€™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 Indiaโ€™s CAC may not be the correct benchmark for that of Amwayโ€™s.

๐Ÿ“When 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.



#CAC #customeracquisition #attention #metrics #startups #KPI

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