Customer Acquisition Cost Calculator
Answers the Question
How much does it cost to earn another customer?
Calculator for Customer Acquisition Cost
What Is the Customer Acquisition Cost?
The customer acquisition cost provides insight into the effectiveness of sales. The higher the customer acquisition cost, the more expensive it is to sign a new customer, and the greater the profits that must be earned to compensate for the resources expended.
Why Is it Important?
- The key idea is that if costs more money to attract new customers than they bring in profit (not revenue!), the business will eventually fail.
- Many businesses will continue to increase spending on customer acquisition as long as the customer acquisition cost remains above customer lifetime value. Whether this approach makes sense or not will depend highly upon opportunity cost, reputational considerations, and organizational goals.
- Monitoring shifts in costs of customer acquisition may signal that something fundamental has changed. Competition may be increasing, firm reputation may be changing, or the market may be shifting.
Formula(s) to Calculate Customer Acquisition Cost
- CUSTOMER ACQUISITION COST = COST OF ATTRACTING NEW CUSTOMERS / NUMBER OF NEW CUSTOMERS
Common Mistakes
- Not realizing that all customers aren't created equal. Customers that have a much higher lifetime value may be worth greater expenses to attract. Some firms may push their salespeople to minimize customer acquisition costs, without realizing that this may lead to less desirable customers.
- Not fully accounting for all recruitment costs. It may be obvious that a sales call has a cost that should be included in the cost of customer acquisition, but other costs may not be obvious and thus forgotten. For instance, should the expense of maintaining good documentation be considered a cost of customer acquisition?
- Extrapolating from small numbers. For businesses with sufficiently small numbers of customers served (such as a one-man consultancy), tiny shifts in customers signed will lead to wild swings in customer acquisition costs.
- Believing that customer acquisition cost won't change as greater sums of money are applied. Many firms will find that, after a suitably large rate of spend is reached, the customer acquisition cost begins to increase significantly. This is because earlier efforts will tend to attract potential customers who are most interested. Later efforts attract more hesitant prospects.