Acquiring new customers can be expensive and time-consuming. In fact, research shows that it is 5 times more expensive to find new customers than it is to keep existing ones.
Customer Acquisition Costs (CAC)
Customer Acquisition Costs (CAC) are the costs related to acquiring new customers.
CAC are the key business metrics commonly used with Customer Lifetime Value (LTV) metrics used to measure value generated by a new customer.
CAC is usually calculated as sales and marketing expenses when divided by the number of new customers. A thorough understanding of CAC can help improve a company’s marketing return on investment, profitability, and profit margin.
CAC = Sales & Marketing Expense (divided by) Number of New Customers
If Bob, a Sales Manager is paid $45K per annum and spends $20,000 in a year to acquire 4,500 new customers, Bob’s company’s customer acquisition costs are:
$45k+$20k/$4,550 = $12.02 cost per customer
Customer satisfaction is not the key to long-term customer retention. On average 60 – 80% of satisfied customers will never make another purchase from you. Why is this?
Satisfied Customers & Long-Term Sales
There are several tried and true strategies you can use to keep existing customers over the long term and encourage them towards repeat purchases.
The Key is to increase AOV (Average Order Value)
- Create automation to build long term relationships with customers
- Address ongoing customer needs
- Develop new products and services aimed at current customers
- Up-swell and cross-sell existing customers
Acquiring new customers is time-consuming and expensive. When considering “high value customers” the CAC can be significantly higher and take years to realize profitability. So, while attracting and developing new customers is integral to the lifeline of a business, so too is the retention and upsell of long-term customers.