CAC
CAC (Customer Acquisition Cost) is the total advertising and sales expenses needed to turn a potential buyer into an actual one. In terms of the wording, this metric is similar to CPA (cost per action), but they have a number of significant differences.
The main difference between CAC and other metrics is that it evaluates the business as a whole, and most of the indicators are related to advertising. So, when CPA is calculated, advertising costs are directly proportional to the number of targeted actions. And when CAC is calculated, all advertising and sales costs are divided by the number of buyers attracted.
CAC can be successfully used to solve the following problems:
- business expansion. If for a company the cost of attracting one client is an acceptable amount, then it can safely use free funds to expand its activities - opening new points of sale;
- improving the advertising strategy. If a company notes high costs of attracting new customers, then this is a signal that it is necessary to change the advertising strategy, as well as review the advertising channels used and, if necessary, replace them with more effective ones. In addition, the high costs of attracting potential buyers indicate that the company needs to change the way it identifies the target audience;
- increase in income and decrease in expenses. There are two ways to increase the CAC indicator: evaluate advertising costs and remove some of the cost items, or vice versa, increase costs, for example, on contextual advertising in order to attract more buyers. Which way to give preference will depend on the development plan of the company.
If you ignore the CAC calculation, then the company may lose revenue due to the fact that it used ineffective marketing channels or invested in attracting the wrong audience.
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