Customer Acquisition Cost (CAC) is the cost that is required for a business to secure a customer. Businesses keep track of CAC to have an idea of how to allocate resources when they are trying to gain new customers. This cost includes all expenses to close the deal with a potential customer, such as research, advertising, and incentives.
Why is customer acquisition cost important in marketing?
Businesses use this metric to help manage finances and set limits on how much they are willing to spend to acquire new customers.
Managing a company's CAC helps that company make more informed business decisions. It is important to not spend more trying to acquire a customer than the value the customer is expected to provide over its lifecycle.
For this reason, companies often set goals and maximum limits on their customer acquisition costs. This prevents them from going overboard on spending when reaching out to potential new customers. A high CAC can result from inefficient marketing campaigns.
Although a well managed SEO strategy can greatly lower costs, mishandled Google AdWords campaigns can negate those positive SEO effects. A great way for a company to lower CAC is by focusing on inbound marketing, including content creation, social media networks, and other free mediums for reaching out to customers.