Posted on
October 2, 2023

Customer acquisition cost, how to calculate your profitability

In an era where digital marketing is gaining more and more momentum, it has become of prime importance for a company to optimally master its ins and outs, in order to create marketing campaigns that truly deliver results. With this in mind, knowing the profitability of a marketing campaign is undoubtedly the most essential action for it. Allowing the financial impact of a digital marketing campaign to be measured, the calculation of the acquisition cost is able to provide a wide range of data that proves essential to the company and on a daily basis for a significant and lasting return on investment. . Between definition, calculation formulas and reasons to adhere to them, we dissect for you below the complex subject of customer acquisition cost.

Customer acquisition cost: a driving value for the company

A key indicator essential to the marketing manager's many missions, the customer acquisition cost is the primary anchor point he must have in order to be able to confirm or adjust his overall marketing strategy. Used for decades in direct marketing, its calculation undergoes modifications according to technological advances offered to companies although its interest remains unchanged. The latter, the calculation of profitability, allows the company to know the profitability offered by each campaign through, among other things, the leads and new customers brought by it. More than that, the customer acquisition cost also plays a major role in calculating the ROI inherent to the company.

Customer acquisition cost: the methods associated with its calculation

Concretely, the customer acquisition cost (CAC) is obtained by dividing the total investments in digital marketing by the number of new customers or leads acquired according to the interest of the marketing campaign. Taking into account all expenses linked to campaigns, the total investments can include in its amount the costs incurred for the creation of content, website optimization measures, purchased digital advertising or even advertising campaigns initiated on social networks. Clearly, each cost necessary for the transformation of leads and new customers has its place in this amount which must be calculated carefully for a precise result.

Let's take for a simple and theoretical example the implementation of an expense of 10,000 euros listing within it digital marketing actions such as the purchase of sponsored articles and the creation of promotional videos. Ultimately, the overall campaign offered the company 200 new customers or 100 new leads. In the first case, the calculation is as follows: 10000/200 = 50. The customer acquisition cost is therefore 50 euros. For the cost of acquiring leads, the calculation differs slightly: 10000/100 = 100. For this case and you will easily understand, the cost of acquiring a lead from the company is therefore 100 euros.

The interests brought by the calculation of the acquisition cost in digital marketing

As seen above, calculating the acquisition cost in digital marketing is a measure of primary importance in order to appreciate the benefits provided by the marketing strategy and follow step by step the profitability offered by the deployed acquisition campaign. But also, this calculation proves crucial in identifying the most effective channels, actions and strategies for acquiring new customers and/or leads. Thanks to this, the company will subsequently be able to identify the best promotion channels to favor for maximizing profits and human efforts, which are closely linked.

Ultimately, the customer acquisition cost allows the marketing manager to manage the company's future marketing actions with a view to optimizing ROI. Knowing the acquisition cost per lead or purchase before launching a campaign also allows you to estimate the budget necessary for a predefined number of new customers or leads. Conversely, this same calculation offers the company foresight on the turnover, or how many new customers will be necessary to obtain a turnover “x”.

Exaggerated foresight: taking into account the LIFE value

In conclusion of this article and to perfect the profitability data of a digital campaign, the company will have to compare the customer acquisition cost obtained by the LIFETIME value (Customer Lifetime Value), or the total value of the benefits generated by a customer obtained throughout his commercial relationship with the company. Carrying out this process will allow the latter to know more precisely the real return on investment offered by the digital marketing campaign carried out.

This could be considered profitable if the VIE value is greater than the CAC. In other words, each gain obtained by a new customer or lead must be greater than the acquisition cost for a net profit. By obtaining all of this data, the company will be able to evaluate and estimate the turnover generated by each digital marketing campaign but also and above all what amount it will have to spend on average to each new customer.