The success of any marketing campaign is determined by KPIs (key performance indicators) and using measurement tools to assess effectiveness. As Brisbane marketing consultants, Market Smartly, we work with clients locally, nationally and internationally and all our clients have the same needs when it comes to measuring marketing performance: How do you measure the effectiveness of marketing?
All clients want to measure marketing ROI (return on investment). Marketing strategies often lack measurement calculations that can really pin point the initiatives that are effective and which ones aren’t.
Throughout our “Essential Sales and Marketing KPIs” posts series, we will be explaining the most important marketing calculations needed in order to enhance your marketing strategy and maximize ROI.
Customer Acquisition Cost (CAC) Calculation:
As the name implies, customer acquisition cost involves the summation of sales and marketing costs in order to secure a new client. Common CAC components include advertising costs, salaries, networking events costs, trade shows, sales bonuses and so forth. To be completely accurate, we advise to also include 5% of overheads as marketing costs as well.
To calculate your CAC for a specific period, use the following equation:
CAC = Total sales and marketing costs over a specific period/number of acquired customers.
For example, if you spend a total of $10,000 on sales and marketing in a quarter and acquired 50 customers, then your CAC = 10,000/50 = $200.
How to Use CAC in Marketing Analysis
CAC gives you an estimation of the costs incurred to acquire a single customer during a period of time. It takes into consideration the total cost rather than an individual campaign cost and therefore it is a measure of the effectiveness of your integrated marketing activities rather than the effectiveness of a single initiative.
The aim is to reduce the CAC. We recently restructured the marketing strategies for a Brisbane based client because their CAC was over $1000. By investigating the marketing and sales processes, we made a few simple changes which reduced the marketing costs at the same time as increasing the sales conversions. The CAC has been steadily reducing and at the time of writing is $200 compared to $1000.
Your CAC also helps focus your staff on the value of acquiring a new customer and consequently, the cost of losing a sale. This increased awareness can be used to motivate staff to find innovative ways to increase sales conversion and/or trim marketing spend in order to reduce the CAC.
You can use the CAC as a KPI. For example, if there are large fluctuations in CAC month to month, this may be indicative of an issue in the sales process or the marketing strategies and allows you to take action to remedy the situation quickly.
The CAC is a very important measurement but it needs to be combined with additional KPIs in order to provide an accurate foundation for sales and marketing analysis.
Stay tuned for our upcoming posts as we will shed light on more sales and marketing KPIs. To your success!
Market Smartly offers professional marketing expertise for businesses in the Brisbane region. They provide strategy and planning for companies wanting to increase brand awareness and focus on ROI marketing.
Name: Market Smartly
About: Market Smartly's marketing consultants understand the realities of business and focused on measurable and practical solutions. Our fresh approach to marketing is simple, no frills, highly effective and tailored to your business. Our team of consultants can provide specialist advice in all areas of marketing, from marketing strategies, to online and offline solutions. We’re there when you needs us… not when you don’t!