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If your advertising platform says it cost $6.06 to generate a new customer, is your customer acquisition cost really $6.06?
Maybe not.
In this episode of It’s The Bottom Line that Matters, Jennifer R. Glass and Patricia Reszetylo examine customer acquisition cost and the expenses that can disappear when business owners focus only on the most visible number.
Patricia raises the example of a business looking only at advertising spend while overlooking other resources required to make the campaign work: graphic design, ad management, landing pages, website changes, and other acquisition-related work.
Jennifer adds referral fees to the discussion and emphasizes the importance of knowing what is actually being spent to bring a new customer into the business.
The conversation also explores an important distinction between three different cost categories:
- Acquiring the customer
- Delivering the product or service
- Retaining the customer after the first sale
Those numbers answer different questions and should not simply be mixed together.
Jennifer also previews upcoming conversations about customer lifetime value and the relationship between lifetime value and customer acquisition cost.
For business owners trying to decide which marketing activities are actually working, CAC becomes far more useful when the costs behind the number are clearly defined.
What you need to know:
- What is customer acquisition cost?
- How do I calculate CAC?
- What expenses should be included in customer acquisition cost?
- Is ad spend the same as CAC?
- Should referral fees count toward customer acquisition cost?
- What is the difference between acquisition cost and retention cost?
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