So, what is CAC in digital marketing and how does it play a role in your business? How do you calculate the right CAC? Find the answers in the following discussion, okay!
What is CAC in Digital Marketing?
CAC or Customer Acquisition Cost is the cost incurred by a company to acquire a new customer. In the world of digital marketing , CAC is one of the important indicators to measure the success of a marketing strategy.
One thing you need to know is that the cost referred to in CAC is the total cost required to attract consumers. Not only the cost of marketing campaigns or advertising, but all costs associated with the marketing and sales process.
The definition of CAC is also related to Lifetime Value (LTV), which is the value of all transactions made by a customer during their membership period. Companies must ensure that the customer's LTV is higher than CAC, so that the marketing strategy carried out does not harm the company.
Why is CAC Important?
By knowing the CAC, companies can determine how many customers are needed to reach the break even point. In addition, companies can also adjust marketing strategies to be more effective in acquiring new customers at a more efficient cost.
The lower the CAC value, the more you can conclude special database that the marketing activities have been running effectively. But if the CAC value for each customer is high, then you need to review which part makes it ineffective. Although of course, the effectiveness of marketing activities as a whole can also be affected by various factors.
Formula for Calculating CAC
CAC can be calculated by adding up all costs incurred to acquire new customers, then dividing by the number of customers successfully acquired in a certain time period.
CAC = Total marketing and sales costs / Customers acquired
For example, if a company spends Rp 10,000,000 on social media advertising and manages to acquire 100 new customers in one month. Then to find out its CAC is Rp 10,000,000 divided by 100, or Rp 100,000 per customer.
The CAC example above is the simplest calculation to make it easier for you to understand the concept. However, in practice, there are many costs included in the total cost that you need to calculate.
Some of these include marketing costs, salaries of marketing/sales employees, costs of purchasing software, costs of hiring offsite professionals, and costs of equipment used. You also need to include additional costs or overhead that arise when conducting marketing activities.
How to Optimize CAC
As a businessman, you certainly do not want to get a high CAC value and affect profits. Businessmen certainly want the expenditure made to be optimal and comparable to the results obtained.
For this, you can optimize CAC with the following steps.
Targeting the Right Market
The first important step for you to implement in optimizing CAC is to target the right market. Know well who the audience and potential customers of your business are. That way, you will not waste time and money targeting the wrong audience.
If you target your audience correctly, then the chances of them becoming customers are greater. That means the cost you spend to approach and market to them is efficient.
Making Loyal Customers
One way to reduce CAC is to make existing customers loyal. Not only focusing on getting new customers, you also need to retain people who are already customers.
By making old customers loyal, your total number of customers can increase along with new ones. The more customers you have, the lower the CAC value you will get.
In addition, loyal customers can also help you get new customers without spending money. Loyal customers do not need to be asked to give positive reviews about the product, and can attract new customers. This concept is also known as word-of-mouth strategy or word-of-mouth marketing.
